Are you an investor who now wants to invest for residual income? If so, then you’re guaranteed not to be alone: In times of low interest rates, many investors are looking for an adequate replacement. However, it is important to note that dividends are only suitable for this goal to a limited extent.
In addition, we are now in a very difficult economic time. The corona virus and the general downturn could also prove to be an existential test for some dividend pearls. Or at least for the respective dividend history.
Accordingly, it is important for Foolish income investors to pay attention to a few things. Today, let’s take a look at three aspects that are extremely relevant.
Pay attention to defensive quality
Something you should consider as an investor when investing for income now is a certain basic quality. Many investors equate this with the history of a share. However, this is just a component. Quite a bit weak lately.
No, quality should always be in the present. Say: The stock and the basic company should be defensive. And ideally timeless when it comes to sales and earnings. Many industries that deliver solid, for example, come from the food, hygiene or pharmaceutical industries. Or other business models that don’t mind a crisis.
In the long term, quality is and remains something that can hardly be replaced by anything. Accordingly, as a Foolisher income investor, you cannot do without placing the company in the foreground.
A security buffer
Before we move on, let’s repeat the first aspect: quality is something that hovers above everything. Other aspects are just decorative accessories. Just like the security buffer that we want to address now.
A security buffer can be of different types. For example, a low payout ratio can help keep dividends and passive income constant. Yes, even if the numbers give way moderately. Accordingly, this key figure is an important component when it comes to the security buffer.
A comparatively cheap valuation can also be a safety buffer. A favorable valuation can avoid price losses, especially if the overall figures are somewhat declining. The dividend and passive income can be important. However, it is also important to keep an eye on the total return.
Solid growth drivers
Admittedly, stagnation can sometimes be attractive with high and comparatively strong dividends and passive income. The salt in the soup for income investors, however, is a constant moderate growth. This often leads to better overall returns overall. As well as long-term dividends.
How can you ideally identify future dividend growth? Perhaps the most important question at this point. The answer is quite simple: there should be a solid growth driver in an overall strong, timeless market that can grow sales and earnings in the medium to long term.
That can be a constant pricing power. Or an intact growth market that continues to grow as such. This aspect is therefore important for passive, steadily increasing income and the total return.
Pay attention to these aspects when investing for income
Anyone who wants to invest for income as an investor should pay attention to a stable, timeless, defensive business model and strong quality. As well as a security buffer and overall solid growth. These are important steps to achieve solid income in the long term. As well as strong returns.
The post What to watch out for when investing for income now! appeared first on The Motley Fool Germany.
Motley Fool Deutschland 2020