With Rio Tinto upping its payout to shareholders and JB Hi-Fi, Cochlear and OZ Minerals following suit this reporting season, it may be tempting for investors to buy up dividend paying stocks. However, according to Russell Investments’ latest paper, Dividends are the new black – Why the classics always come back in fashion, it is important for investors to consider more than just yields and know which companies are worth buying and which companies have unsustainable dividends.

The theme of income investing has experienced a surge in popularity recently owing to the attractiveness of dividends as a consistent source of positive returns and having less volatility in lower growth environments. On this, Russell’s new paper provides a ‘how to guide’ for getting the most out of dividends by indentifying companies whose dividends are likely to grow over time. This includes assessing multiple characteristics such as historical dividend yield, forward looking dividend yield, historical dividend trajectory and earnings variability over multiple time periods.

Russell’s ETF product specialist, Bronwyn Yates says the paper has given consideration to the role after-tax strategies play in the income investing theme, with the paper explaining how to make the most out of franking credits to achieve an alternative source of return for investors.

The Russell paper also looks at using different dividend strategies for different investment stages by highlighting the importance for those in the accumulation stage to think of dividends as a way to supplement growth in a volatile market. Those in decumulation should use dividends to supplement income to avoid drawing on capital.

Click here to read the full report.

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