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Investing for Dividends

Investing for DividendsRemember the old adage, ‘don’t put all your eggs in one basket’? Many investors have been guilty of casting their nets too close to home when it comes to getting a good return on their investments.

Despite the low-growth world, many companies are still able to offer their shareholders positive ‘guidance’ on future earnings – via dividends. So it has become very popular to invest a large proportion or all of your money in UK and large multinational companies that are offering good dividends, but sometimes you can get your figures burnt.

Don’t forget that no matter how attractive the dividend appears if the company gets into trouble and its share price dives the profits you make via the dividends are effectively wiped out if you need to cash your holdings in as you will have lost a significant amount of money through the drop in value of your shares

An current example is HSBC, which could be forced to cut its dividend after posting a dramatic fall in profits. The bank saw its quarterly profit plunge 14 per cent to £4.2billion due to market turmoil and a global slowdown. And revenues fell £627million to £10.2billion compared to the same period a year earlier. Analysts singled out dwindling earnings from the bank’s loan book as a particular cause for concern.

The bank paid a 2015 dividend of 35p per share, or 6.5 per cent of its share price. Hargreaves Lansdown analyst Laith Khalaf said: “The market is sceptical the dividend can be maintained. Investors are clearly concerned on this front”.

This caps off a bleak reporting season for British banks. Royal Bank of Scotland made a £1bn loss, while profits at Barclays, Lloyds and Standard Chartered were all down from a year earlier.

Three European banks also reported quarterly results yesterday. Profits at Swiss lender UBS dropped 64 per cent to £509.3million, and at Germany’s Commerzbank they more than halved to £216million.

Only French bank BNP Paribas posted a profit increase, up £100million to £2.1billion.

So the key to managing your investment risk is never put all your eggs in one basket, make sure that your portfolio is diversified and reviewed at least every 6 months.

Blacktower Financial Management (International) Ltd
Address: Edificio Mapro, Estrada Quinta do Lago, 8135-106 Almancil
T: 289 355685

Blacktower Financial Management (International) Ltd is licensed by the Gibraltar Financial Services Commission Licence 00805B


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