How to find dividend shares in 2021

Last year saw many firms suspend or halt their dividends. Times were tough, and uncertain, and companies needed to make cuts. Though we are hoping for better now, there is still much uncertainty surrounding Covid-19, vaccines, and the economic impact of lockdowns. With all this to worry about, here is […]

Last year saw many firms suspend or halt their dividends. Times were tough, and uncertain, and companies needed to make cuts. Though we are hoping for better now, there is still much uncertainty surrounding Covid-19, vaccines, and the economic impact of lockdowns. With all this to worry about, here is what to look for when selecting dividend shares this year.

My top three criteria for dividend shares in uncertain times

Many of my normal rules for selecting dividend shares go out the window when times are risky. However, some become more important than ever. Even in these uncertain times, there are strong companies out there performing well. Some of these firms pay dividends. If their shares are trading at lower prices now, then it may be possible to lock in high yields.

Reduce risk with big blue chip stocks

In risky times, when looking to invest for income, this is one of my main rules. Dividend shares that lose your initial capital are bad investments, no matter how much they yield. I look for larger firms with a strong brand. In the UK this usually means looking at the FTSE 100.

There are still good yields to be found, but the size and strength of these companies should minimise the risk of losing money. Of course you still need to do your research, but common sense can help. Are you going to invest in the big airlines while nobody is flying, or is online shopping a better option during lockdown?

The best dividend-paying companies can afford to pay them

Perhaps an obvious statement, but a company that pays dividends should be able to afford it. Historically this has not always been the case. More than one firm has enticed investors with high payouts it can’t afford.

For this I look at a company’s finances. I want to see year-on-year growth in both revenue and, more importantly, profit. The impact of Covid-19 may have upset this pattern, of course. I have to consider the company’s prospects going forward, and the corona crisis may be a one-time blip. However, given the way 2021 is looking, I’m concerned that Covid-19’s impact is far from over. I would probably avoid shares that have been badly affected by the pandemic.

Linked with this, I look for consistent dividend payouts. I want a company that has paid dividends regularly for many years, preferably with dividend growth each year. Again 2020 could be an exception to this, depending on the firm’s specific situation.

Yields

Yields are the one area where these uncertain times can actually offer better opportunities. Dividend shares pay out on a pence-per-share basis, not as a percentage. This means the share price as well as the payment itself determine yield. A low share price means stronger percentage returns.

Again this is very much dependant on the firm, and needs good research. It is only a good investment when the share price is low for non-fundamental reasons. Things like a bad news story or short-term worries often hit stock prices, even when a company’s fundamental outlook doesn’t change.

For me, this seems an even more likely scenario in 2021. Find good, strong firms, and time your investment right. We should be cautious when finding dividend shares in 2021, but I think some great opportunities are out there.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

More reading

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The post How to find dividend shares in 2021 appeared first on The Motley Fool UK.

ASNF

Next Post

4 Trends That Will Shape Education in 2021

Tue Jan 12 , 2021
I recently caught up with my friend Nathalie Mainland, senior vice president and general manager of Education Cloud at Salesforce.org, on four trends driving key implications in the education industry this year. Nathalie is one of the most thoughtful and knowledgeable ed tech leaders in the industry who seamlessly blends […]