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Characteristics of Good Dividend Stocks

Updated on April 25, 2012

There are many different types of dividend stocks to choose from. So, how do you find the best dividend stocks with the characteristics to choose from? Having an sense of the characteristics that you need will tremendously help in narrowing down the perfect ones for you. The highest dividend stocks are going to be consistent year in and year out. If, we cannot find this characteristic in the dividend stocks you are searching at then, you may want to consider moving on to another choice. Here, are a list of the characteristics that you want to see had a consistency or are improved on year after year.

1. Dividend Yield – this is a ratio used by stock traders, to determine how much a company pays out in dividends each year compared to its stock price. It provides you an instant look at the actual value you are going to receive back from investing in this stock per share. The dividend yield is a reliable indicator on how much a company will share with the stock holders in any given year. For example, if,you bout a share of stock in a company valued at 100 dollars and you got an annual dividend of 5.00S per share then the stock yield would be at around 5 percent.

When calculating the dividend yield per share you want to look at both the current and future ratios of the yield. As, you calculate the yield on a yearly basis it can give you a better understanding in exactly what to expect on a yearly basis. As the stock price moves up and down so will the yield. That way you can get a more accurate percentage on a yearly basis.

Sales or Revenue – A company needs to make sales and income. If, it does not have either one of those it means the company is not going to be able to payout its dividend price per share. So, before investing in any dividend stock always, make sure you are investing in a company that can provide sales and profit. Look at its projected income from sales, but also pay attention to the last few years and see if it is growing.

2. Profit – one thing that investors check is the EPS. This is the total profit the company Is receiving in relations to its sales and service. So the higher EPS per share in relation to its per share price, you can gauge how well the company is profiting. If, the EPS is higher than normal always go back and recheck the sales because it can be over inflated.

3. Debt – Looking at the debt of a company can be divided into two groups’ bad debt and good debt. The less a company has of severe debt the more stable it is going to be. So always check the debt to equity ratio of the company and make sure they are not borrowing too much to survive. If, they are then it may indicate an issues with the company and better not to waste your money on that stock.

4. High Free Cash Flow Margins – look at the company’s ability to have free cash flow. See if the company pays out more cash in dividends than their cash reserves allow. If, they are paying out more in dividends than free cash on hand it is harder to grow the company. So, this can be a sign of weakness if the company is paying out more than it actually has.

5. Payout Ratio – the payout ratio of companies is the yearly dividend per share divided by the earnings per share of that year. This can indicate an excellent investment when looking for dividends and the quality of the investment. If, the payout ratio is too high though it can indicate that the company could be in trouble and it’s a good idea to go back and reevaluate the last 5 top characteristics of the company.

6. Payouts – Always look for companies that are paying out above average dividends because you will get a better return on your investments. Look for ones that also have the ability to have significant growth over a small period of time. This can be a reliable indication of a growth spurt or high demand for their products or service. This means more dollar signs for you at the end of the year.

These are the top 7 characteristics you want to look for in any company that you are thinking of investing in. So, if you want a steady dividend passive income then stick with the strongest companies that have these 7 characteristics. You will do better and have a lot better return on your investment in the long run.


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