With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) crashing once again through the 5,000 point level investors will no doubt be getting nervous as to the direction of the share market from here.
For investors who hold quality, maintainable dividend stocks there is arguably less to worry about as even if they experience short term declines in their portfolio value, their income stream from dividend payments should remain steady. This is especially important considering the wickedly low interest rate environment.
The major problem which may arise however is if your portfolio holdings of income stocks don't turn out to have as maintainable dividends as you were expecting.
As investors in blue chip Woolworths Limited (ASX: WOW) are likely to find out, even market-leading blue chips don't offer assured security with analyst consensus forecasting a dramatic cut to the group's dividend pay-out over the next few years.
For this reason, investors must choose carefully when picking income stocks. Here are a couple of factors worth keeping in mind.
- Are there reasonable grounds to expect dividends to rise in the future?
- Does the dividend pay-out ratio leave ample room to at least maintain the past dividend rate?
One stock that could meet the requirements of investors seeking income is blue chip wealth management company AMP Limited (ASX: AMP).
Having paid out dividends totalling 28.5 cents per share (cps) in 2015, Thomson Consensus Estimates forecast the dividend will rise to 30.9 cps in 2016. Importantly, the dividend will be very well covered by a forecast 41.2 cents in earnings per share. With the share price currently at $5.77, this implies the stock is on a forecast dividend yield of 5.3%.
