How to find the BEST dividend stocks for your portfolio

Step 2

•As mentioned above, understand how the company makes money

•Research their industry, their business model, and who their competition is

•These are all basic searches and shouldn’t be hard to find

Step 3

•Most major companies will have an “investors” tab somewhere on their website

•Find this page and see what it contains

•This page should have a lot of the information that you need to make informed decisions

Step 4

•Do some math. There are a few basic formulas to analyze. I promise it’s nothing you can’t handle

Formulas:

-Dividend yield

-Dividend payout ratio

-Dividend growth rate

-Free Cash Flow payout

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•Dividend yield

This is simply a calculation of the yearly dividend divided by the stock price

A yield that is too low (

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•Dividend payout ratio

This tells us what % of net income is paid out in the form of dividends.

A healthy % to look for is 30% to 50%

This range indicates that the company is paying out a solid portion of their earnings but keeping cash on hand to grow

REITs are required to pay out 90% of their net earnings in the form of dividends so their payout ratio’s will look very high

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•Dividend growth rate

This information can be found on multiple different sites including the investors page on the companies website

Historically I look for a 10 year dividend growth rate that is outpacing inflation

*This has become a challenge nowadays*

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•Free Cash Flow payout

This ratio is very similar to the dividend payout ratio but it uses free cash flow instead of net income

The formula is annual dividend per share dividend by free cash flow per share

I look for a number below 70%

FCF payout allows you to have a better economic outlook on the business because net earnings can cover up some business flaws

Step 5

•We are done digging in and looking under the hood at some of the financial metrics

•The next step is to supplement your own research with some quick searches on a few of your favourite sites

Step 6

•Look at the recent performance of the stock. Has it sold off lately? Is it at all time highs?

•Timing the market is not as important as time in the market but it helps to see how the stock performs during market cycles

Step 7

•You are ready to begin investing

Hopefully by now you have narrowed your selection down to some high quality dividend stocks

Start buying a few shares and get comfortable with the process

Remember, you are making a long term decision when you decide to buy

Step 8

•Companies change and plans change

Keep up with the companies you own

Read:

-earnings reports

-news headlines

-industry info

Your investment research shouldn’t stop when you buy a stock, it should continue as long as you hold it