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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: chowder who wrote (9257)	6/15/2011 9:22:47 AM
From: RetiredNow	Read Replies (2) \| Respond to of 34328

Payout Ratios are a key to understanding how to get your dividend investments right over the long run. One rule of thumb I use is I take the current dividend yield of a company (say 3%) and divide that by the Payout Ratio (say 25%), to get a clear understanding of how high they could drive the yield up with their current free cash flows. In my example, they could be paying a 12% dividend at a Payout Ratio of 100%, instead of the 3% one at a 25% Payout Ratio. So in my example, this company has plenty of room to grow their dividend for many years to come. If the payout ratio is higher than 100%, then you are just praying the company can grow their revenues. And if they are in a very sick market like commercial real estate, then the only way to grow revenues is to take on massive amounts of new debt or dilute current shareholders through more stock offerings. Both of those things will weaken the case for buying the stock. Based on the evidence in that article alone, I wouldn't be a buyer of HCN. There are much more solid REITs with stronger balance sheets, lower Payout Ratios, and higher dividend yields out there who have plenty of room to grow yields further. It pays to do your homework.