2 Healthcare Dividend Stocks to Buy No Matter Who Wins the Election
Many risk-averse investors, like retirees, buy dividend-paying stocks for their regular distribution of cash to shareholders. Dividends are not guaranteed, and management can cut them at any time, so it's important to understand how safe the dividend is when analyzing a company. Many times, the higher the yield, the riskier the stock. That's why investors should look at the payout ratio, the ratio of dividends paid to net income, in order to determine if the payout is sustainable.
Unfortunately, nothing is that easy in investing. Earnings can be massaged through accounting tricks or understated due to non-cash charges that have no bearing on the ability to pay the dividend. That's why I like to look at the ratio of the dividends paid to free cash flow. This measurement tells me how much the company paid shareholders compared to what management had available to spend. Often, this view can help avoid high-yield traps that are too good to be true.
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Source Fool.com
