2023 - The year of the Dividends...

With inflation still high in many countries and a possible looming recession, I have decided to look into investing in companies that offer consistent and reliable dividends, as they provide a steady stream of income to help mitigate the effects of inflation and uncertainty in the economy.

Dividends are payments made by a company to its shareholders, typically on a quarterly basis. They are a way for companies to share their profits with shareholders and are usually expressed as a percentage of the current stock price. Dividends can be a sign of a company's financial strength and stability, as well as an indication of the company's management's confidence in the company's future prospects.

A Dividend Reinvestment Plan (DRIP) is a way for shareholders to automatically reinvest their dividends back into the company by purchasing additional shares or fractions of shares, rather than receiving the dividends in cash. Some companies offer their shareholders the option to enroll in a DRIP, which allows them to purchase additional shares at a discounted price, often without paying any brokerage fees.

DRIPs can be a good way for investors to gradually build their ownership in a company, especially if they believe in the long-term prospects of the company. It can also be a good way for investors to accumulate shares over time, without having to make large upfront investments. However, it's important to keep in mind that the value of the stock and dividends can fluctuate and past performance is not indicative of future results.

When investing in dividends, there are several important factors to consider:

1. Dividend yield: This is the annual dividend payment expressed as a percentage of the current stock price. A higher yield generally indicates a higher level of income for the investor.

2. Dividend growth: This is the rate at which a company's dividends have increased over time. A company with a history of consistently increasing its dividends may be a more attractive investment, as it suggests that the company is financially stable and has a strong business model.

3. Dividend payout ratio: This is the percentage of a company's earnings that are paid out as dividends. A lower payout ratio may indicate that a company has more room to increase its dividends in the future.

4. Company's financials: It's important to look at the company's financial statements and metrics such as revenue, net income, and cash flow to make sure the company has the ability to sustain the dividend payments in the long run.

During a recession, companies that are considered "recession-proof" are typically those that provide essential goods and services that consumers continue to need regardless of economic conditions. These can include companies in the following industries:

• Healthcare: pharmaceuticals, medical devices, and healthcare services

• Technology: software, internet services, and data centers

• Consumer staples: food, household goods, and personal care products

• Utilities: electricity, water, and gas

• Telecommunications: mobile and internet service providers

A list of some companies that have historically had a good dividends track record:

• Blue chip companies such as Procter & Gamble, Coca-Cola, Johnson & Johnson, and 3M

• Financial companies such as JPMorgan Chase, Wells Fargo and Berkshire Hathaway

• Energy companies such as Exxon Mobil, Chevron and ConocoPhillips

• Real Estate Investment Trusts (REITs) such as Realty Income, National Retail Properties and W.P. Carey

• Technology companies such as Apple, Intel, and Cisco

When investing in dividends, there are several important dates to keep in mind:

Declaration date: This is the date on which a company's board of directors announces the amount of the dividend and the date on which the dividend will be paid.

Ex-dividend date: This is the date on which a stock begins trading without the dividend value. If you purchase a stock on or after the ex-dividend date, you will not be eligible to receive the upcoming dividend payment.

Record date: This is the date on which a company's records are checked to determine which shareholders are eligible to receive the dividend. In order to receive a dividend payment, you must be a shareholder of record on the record date.

Payment date: This is the date on which the dividend is actually paid to shareholders. This is the date when the dividend will be credited to your account.

Dividends and Taxes:

For individual investors, dividends received from domestic companies are taxed as ordinary income, while dividends received from foreign companies are subject to special tax rules.

For dividends received in a taxable account, dividends are taxed at the investor's marginal tax rate, which can range from 10% to 37% depending on the investor's income level. Qualified dividends, which are dividends received from domestic companies that meet certain criteria, are taxed at a lower rate of 0% to 20% depending on the investor's income level.

For dividends received in a tax-advantaged account, such as an IRA or 401(k), dividends are not taxed at the time they are received but will be taxed when the money is withdrawn in the future. In the case of a Roth IRA, the contributions are taxed when made, but the withdrawals in retirement are tax-free.

In addition, some examples of countries with historically low tax rates on dividends include:

• Hong Kong, which has no taxes on dividends for both residents and non-residents

• Switzerland, which has a federal tax rate of 0-35% on dividends for residents and a withholding tax rate of 35% for non-residents

• Singapore, which has a tax rate of 0-22% on dividends for residents and a withholding tax rate of 15% for non-residents

• Dubai, which has no taxes on dividends for both residents and non-residents

• Bermuda, which has no taxes on dividends for both residents and non-residents

Companies with good dividend yields which I personally hold as part of my long term portfolio:

For more information on dividends and dividend calculators check out these sources:

1. Dividend.com: www.dividend.com

2. Nasdaq: https://www.nasdaq.com/dividend-stocks/dividend-calculator

3. Yahoo finance: https://finance.yahoo.com/calculator/dividend/

4. Google finance: https://www.google.com/finance

5. Dividendinvestor.com: www.dividendinvestor.com

The information provided on this website is for general informational purposes only and does not constitute financial, investment, or professional advice. The information provided is not intended to be a substitute for individualized advice from a qualified financial advisor or tax professional.

The views and opinions expressed on this website are those of the author and do not necessarily reflect the official policy or position of any financial institution or organization. No action should be taken based solely on the content of this website.

Past performance is not indicative of future results. Investing in securities carries risk and the value of your investment may fluctuate. Always consult with a qualified financial advisor or tax professional before making any investment decisions.