The Risks & Rewards Of Australian Dividend Stocks
It can be an exciting time investing on the ASX, particularly when you hear about the lucrative benefits of concepts like Australian dividend stocks, franking credits, and the mere feeling of investing itself. It can be an intoxicatingly fun and exciting venture you embark upon when placing your first order on the platform of your choosing.
Be wary though dear investor, there can be some nasty surprises lurking in the green grass – it’s not a simple matter of pressing a button and getting money, if it were that simple and risk-averse, there wouldn’t be a share market at all.
Many people understand the inherent risks of the share market and delving too quickly into Australian dividend stocks without the proper research. This is why this is being written, hopefully to shed some light for new investors on the marketplace and to give a few tips on managing risk and propagating wise investment strategies with Australian dividend stocks for your portfolio and your future.
Defining Australian Dividend Stocks
Oftentimes, companies that are listed on the ASX that offer a slice of the profits for their investors, this is usually done once or twice a year and the percentage of the cut will vary on the business, these shares are known as Australian dividend stocks, and they are a popular way for people to hedge against potential losses and to feel a part of the company’s growth in some respect.
Can you see the inherent risk here yet?
It can be easy to miss for a newbie investor so let’s break it down.
Lesson: Profits Matter
To profit from Australian dividend stocks, the company in question has to report a profitable period. This is easier said than done as a majority of the news outlets will share the very large gains and the intense losses but never the meandering in-between that so many companies can face in any given year.
Considering the recent pandemic is still wreaking havoc, it would pay you well to research the companies offering Australian dividend stocks and see if the risk-to-reward ratio is entirely worth it, particularly if you are new and without a diversified and fortified portfolio.
Researching Your Australian Dividend Stocks
The research is where the good investors thrive, and the amateur investors devolve in many respects. Looking at the percentage payout of certain Australian dividend stocks does not indicate the marketable growth. Many factors are at play, and it is on you to research the best route forward to ensure you have a sustainable growth in your portfolio.
Looking through the historical data may not sound fun or exciting, but it will give you a hearty lesson in understanding the strange movements the market can make. It also gives you a workable history of the company and its historical success rate in terms of profits and performance under different worldwide conditions (i.e., Pandemics, Attacks, Shortages etc.).
Lesson: Research Matters
Let’s have a look at one of the most consistent Australian dividend stocks on the ASX, Brickwork. As we are in the land of land development, the chances of the market going against a construction supply company is not the highest. One only has to take a look at their payouts to investors over the last 45 years and seen a healthy and consistent movement in a positive direction. The consistency of the market favouring the company is one aspect to keep in mind, another is the analysis of current major project announcements which likely steered more confidence in the company as a whole.
This is not financial advice, but it certainly pays to do your research and to remember profit calculations when looking at Australian dividend stocks.