Investment for income is generally a long-term proposition. It implies stability and it makes particularly good sense for people who do not expect to become market experts or security analysts.
In fact, there are respected authorities who state flatly that the investor who seeks anything more than income from securities must be classed as a speculator, a risky role to play for any but the most sure-footed professional.
Long term, it should be noted, does not mean forever. It does not mean buy-and-forget. Whatever your holdings, you should review them several times a year and stay alert for news indicating whether the prospects are good that your companies will continue to maintain their present level of earnings.
Unless you have strong reasons for dissatisfaction with an income stock, however, there is little to be gained by switching. Generally speaking, there is not enough difference in the yield, say, from two good-quality utility company stocks to justify the expense of selling one and buying the other. (Although 100 shares of a stock paying $3 would produce $50 more income annually than one paying $2.50, it would take more than a year to rationalize the commissions and taxes paid to sell the latter and buy the former).
Dividends have their own way of accumulating. Given the steady upward trend of stocks in this century, a well-chosen security will reward the investor who holds it patiently. In even five years there can be a dramatic increase in yield. Take, for instance, Central Illinois Public Service CIP on the ticker tape—a moderately well-rated small utility company serving agricultural, mining, and manufacturing areas of central and southern Illinois. In 1953 it hit a low of 17⅛ which meant a 6.7 per cent return in a $1.20 dividend. In 1955 the dividend was upped to $1.35; in 1956 it went to $1.60; in 1958 to $1.68; and in 1959 to $1.76. It is now $1.92.
Meanwhile, its price, reflecting the increased dividend, has more than doubled. At a recent quotation of 44, the yield was a respectable, but not unusual 4.3 per cent. The investor who bought at the 1953 low, however, is now receiving a quite spectacular 10.7 per cent return.
At this point, day-to-day dips and rises in Central Illinois Public Service mean little to the investor of seven years’ standing. By now the dividend would have to be cut more than a third before he found himself where he started, and 64 per cent—to 70 cents—before he reached the 4 per cent return of the man who bought at 40. These drastic cuts are not inconceivable. But the cushion for the investor who bought in 1953 is considerable. There would have to be some quite violent reversals in the price and prospects of CIP before he would be moved to sell out.
The problem of stability is a beguiling one. For many investors it represents the compromise between safety and risk. Safety, as we will see, offers a discouragingly low return. Risk is the privilege of those who can afford it exhilarating when one has dared and won, but painfully, most truly felt by the loser. Somewhere in between, most investors decide, there must be a sensible course, commensurately rewarding and so there seems to be. Stability is the touchstone. The gauges of stability are many.
The one hazard is that they are inevitably based on past performance. No one can say for sure when the downhill slide will begin, when the earnings will diminish, when the seemingly unshakable dividend will be cut or passed.
One gauge, nonetheless, is the consistency and longevity of a company’s dividend payments. A company that has rewarded its shareholders through fair weather and foul must not only be considered strong, but reasonably proud of its performance and eager to maintain public confidence in it.
These records are easy to check. Any broker, for instance, can supply you with a list of the 50 companies with the longest records for consecutive annual dividend payments. It is an impressive group, headed by the Pennsylvania Railroad, which has managed to pay a dividend every year since 1848.
There are no dividends from investing in currencies but you can make more money from a good movement in your currency pairs.
Using Forex software will help you to predict when and which ways different currencies are likely to move.