Features of Good Dividend Stocks

Good dividend stocks will have you enjoying its steady growth together with consistent income, based on good dividend payout ratios. Yet, there are many other ways to spot these kind of stocks.

In our last post, we reviewed how having specific investment types in your investment portfolio will give the income-investor a new and steady revenue streams. While it is one thing to be after consistent income (that is, to want it) and it is another thing to be able to find good ones.

Good dividend stocks will have you enjoying its steady growth together with consistent income, based on good dividend payout ratios. Yet, there are many other ways to spot these kind of stocks. To effectively do this, you must carry out a level of financial analysis. The following are metrics to use to determine good dividend stocks:

Should have a track record of rising dividends

One of the easiest forms of analysis to carry out is to just take a look at how much companies have been paying their investors. Are they consistent? And are they rising or falling? If they are shareholder-friendly they could be generous in giving investors part of their excess cash.

This is particularly good in mature companies having good market ownership and do not have so much room to grow so don’t need to be spending so much on marketing. If you want to know good dividend stocks, find companies that pay good dividends.

Should have a dividend payout ratio of 50 percent or less

There is a general idea that when finding good dividend stocks, you should choose the companies that have payout ratios of 50% and above. That is, you should want companies that give investors more of their profits.

But this is wrong because it means the company isn’t reinvesting in its growth. A good amount of issues many big companies that failed could have been avoided if banks had reduced their dividend payout ratios. Choose a company with 50% or less so that the rest can go back into the company’s business towards future growth.

Sharing too much will hurt the company’s competitive stance so it might get to a point where the dividend are no longer sustainable.

Should have a high return on equity and very little debt

Any company that pays dividends well has to be relatively stable. One of the easiest ways to determine this stability is to find out the company’s return on equity or ROE. This ratio shows the effect of investors funds on the profitability or peak performance of any company.

What will be even more exciting is if the company can do this together with maintaining low corporate debt levels. Not only will it have you getting more dividends, it will also help you remain firm in the case of a recession.

Other things to consider is that the company should have been generating profits for the past 3-5 years no matter how small. Since the goal of income investing is to shield your money to a large extent and keep money coming in, the company must have a good and relatively predictable system of ensuring economic balance. It is also advisable that is maintains a dividend yield of between 2 and 6 percent.

With these features, you will now be able to spot dividend stock and leverage opportunities for the actualization of your investment objectives.

Written by Lawretta Egba.