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How to Choose the Best Dividend Stocks

Updated on February 8, 2012

Over the last few years, many have seen their investment portfolios take a tremendous nosedive. Many people have seen thousands of dollars lost overnight. But, those same people that have ridden the tides are currently 45% up from their all-time lows. How these folks were able to recover an incredible amount after their initial investments went south? They invested heavily in dividend paying stocks.

Dividend stocks have been the preferred investment engine for a number of people’s portfolios. When you compare investment vehicles, like government bonds, options, and other stock categories the ones who have invested in dividend paying stocks earned more on their return. If, you look over the last 4 years the market has been shattered, but the companies that pay dividends the majority of them have continued to raise their dividend payouts. If, you want to see for yourself, look at the appreciations of healthcare, energy, and telecommunications where dividends have continued to rise.

Dividend Stocks: Blue Chip Stocks

The best dividend stocks are the ones who have a proven track record. Companies like General Electric, Microsoft, or even Johnson and Johnson are notable for having a positive increase in dividends year over year. Search for companies that are always going to be in demand like utilities, food, or even entertainment. They may not be real exciting stocks, but can be extremely steady source of dividend gains.

Look at a company’s financial data sheets and make sure they have sufficient cash flow each quarter. If, the company is dipping into access cash reserves to payout dividends, it may indicate a problem within the company. If, this is the case the company has reached a plateau of growth and you may want to watch your investments if they stop paying dividends all together. Always check the debt ratio to profit to see if the company is borrowing too much money this can also be an early warning system of trouble.

One of the biggest things to look for in a positive dividend stock is on that does not exceed a reasonable dividend payout ratio. Search for companies that are paying out no more than 50% dividend ratio on their stocks. The companies paying higher ratios are not investing that extra cash flow back into the company, so the growth of the company will decline.

Dividend Stocks: EFTs or Mutual funds

One of the best investment markets for consistent dividend returns is through EFTS or mutual Funds. It is always a excellent choice to distribute your investments wisely. Since, the market has crashed not every company has been able to raise dividends. So, if you are cutting your loses or are waiting for those companies to return to higher dividends one good way to make up for that lose is through mutual funds or EFTS. They are traded on the stock market just like regular companies with their own stock symbol. There are many high paying mutual funds and EFTs to choose from, international, domestic, energy, technology and others.

Dividend Stocks: REITS – Real Estate investment Trusts

Another big provider of high paying and stable dividend funds are REITS. These real estate investment trust are setup with multiple companies that own a lot of real estate. Some of them are managed like mutual funds where they are divided with many companies. REITS have a pretty solid history of never actually cutting dividends. After the real estate bubble, many put dividends on hold but never cut them. So, another good stream of passive income through dividends is through the use of this investment vehicle.

No matter what your ultimate goals are in achieving, these streams of passive income can be extremely solid for future growth. You can even take your dividend money and reinvest in more of the same stock or take your profits elsewhere. No matter what you decide to do with your dividend strategy always research a company before investing in one.


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