3 Important Questions to Ask Before Investing

If your goal is to increase your current income with your investments, then you’ll want to consider investing in companies that give you ongoing payments, or dividends, in addition to the increasing value of your initial shares.

In the past, you may have been more concerned with capital gains, or how much your stock was increasing in value. Now, though, in investing for income, there are other important concerns to research as well.

Be sure to ask about these three areas of interest before you invest in a company:

1. Does the company have a large overhead? This question is important, because depending on the answer, you may be looking at a great opportunity to invest for income.

* If the company you are considering investing in has a low overhead, much of their earnings may be paid out in dividends. Why is this? Simply because a company that has low overhead costs doesn’t need to continually reinvest its earnings towards new equipment or technology.

* However, with high overhead costs, dividends are likely to be low. A technology company that continually reinvests to stay on the cutting edge will likely use much of its profits to pay for the next wave of new technology rather than dividends.

2. How long will you have to wait to receive your dividends? Depending on the stock you purchase, it may take as long as 12 months before you see a single dividend from your investment. Does such a wait fit your needs?

* Not all stocks have such long waits. However, it’s important to find out what those dividend dates are in order to better form your investment strategy.

3. How much is a percentage worth? Some companies may offer attractive dividend percentages, and it may be easy to get caught up in the high percentages, given the initial investment.

* Just because a stock offers a high dividend, though, does not mean that stock won’t decrease in value.

* Many investors like to think that a stock offering steady dividends is a less risky investment and is somehow shielded from volatility in the market. Unfortunately, this is not the case.

* If you’re aware of this now, you’ll be able to choose your stock carefully, based on more criteria than just dividend percentages.

Investing for income can be a great way for you to not only strengthen your portfolio, but also get a steady cash flow on a quarterly basis. This is a great opportunity if you don’t want to wait fifteen years before selling shares of a company to finally see your earnings.

It’s important to check all of the fine print when purchasing stock from a company with the intent of collecting dividends.

Just as some companies may make you wait a full year before being eligible to collect dividends, there may be other stipulations that you’ll want to know about before committing your money.

If you’re unsure what the policies are for any investment you’re considering, don’t hesitate to inquire directly with the company’s representatives. With more complete knowledge of what you can expect with your dividends, you can avoid surprises down the road and feel secure in your purchase.