Time to pay attention to those dividend covers

INCOME investors should never concern themselves too much with the share price of a stock after they have bought it. That is not always easy to do, though. It is very hard, sometimes, not to take a quick peek in the papers to get some affirmation that we have picked the right stocks. And what better way than to look up the share price?

But it is probably the worse thing that we can do. The point is that the daily fluctuations of share prices is more often about market sentiment than fundamentals. And share prices can easily be affected by emotions. If traders feel especially confident, then share prices could rise. But if they feel particularly challenged, for whatever reason, then the price of those shares could fall.

Put another way, the movement of share prices may have nothing to do with how companies are actually doing. So, from an income investor's perspective, the daily movements in the price of shares probably has no bearing on a company's ability to pay dividends. A rising share price may not indicate that a company is better able to afford its dividends. Conversely, a falling share price may not indicate that a company might be unable to meet its next pay out.