Generally speaking, if a firm is paying a dividend it is making a real profit. Why I say generally, is because some companies do pay out dividends when they cannot afford to do so. Such situations can last much longer than you might think possible. However, they never last forever.
This is why Dividend Payout Ratios are good to look at when investing in a company. Companies can, of course lie, or muck around with their accounting. Some companies go bankrupt because the business is not viable. This is why you diversify.
Do not let one company's stock you are holding be higher than an amount you cannot afford to lose. I look at the company's stocks value and not let any company be more than 5 to 10% of my portfolio.
When I was starting out, I bought 100 shares of one company and did not buy any more until I had purchases 100 shares of two other companies. You can diversify this this way also if you are purchasing mutual funds or ETFs. However if go the mutual funds or ETF route, you pay fee for getting someone to make investment decisions for you.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
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