5 Ways to Find the Best Dividend Stocks
By Lee Franzen
For an easy dividend stock screener to find the best dividend stocks, I would suggest focusing on the following qualities to help find strong dividend stock candidates:
Dividend Yield - The dividend yield can be calculated primarily in one of two ways - either by using the trailing 12 months dividends, or by using the expected dividends for the upcoming 12 months, and then dividing that number by the current price of the stock. Ideally you want to buy dividend stocks that have a yield that is higher than the overall market. Stock market yields as well as individual stocks yields will fluctuate over time, as stock prices move up and down, and the amount companies pay out in dividends changes, so it is good to check these factors right before you buy a stock, and not just rely on data you put together at some earlier point in time. At this time, I would suggest looking for stocks with dividend yields of at least 4% to 5%.
Profit - Also known as earnings, profit drives company growth, and more importantly for us, profit is what pays dividends in healthy stocks that pay dividends (some company's pay for dividends by taking on more debt, and distributing that cash to share holders - see the next paragraph for more on debt). While there are many ways to measure profitability, one widely used indicator that can be found on most stock screens is return on equity (ROE). For ROE, the higher the better. The minimum ROE we want is in the 10% to 12% range. Another great indicator for profitability that is available on many stock screeners is earnings per share (EPS) - again, the higher the better for this indicator too.
Debt - Many of the best dividend stocks are from companies that are large, mature, and have accumulated long term debt during the process of growing into their current state. The problem with debt is that too much of it can represent a risk to future dividend payments if the company goes into a rough patch, and earnings drop to the point where they may need the money they normally pay out as dividends to service their debt payments. One easy way to measure debt is to look at the debt to equity ratio. For our purposes, we would like to see the company financed with more equity than debt, which means that our dividend stock screener would need to limit the debt to equity ratio to less than.5, and ideally, you should look for stocks with a ratio even lower than that.
Market Cap - Also known as the market capitalization of a company, is a good way to filter the size of the company you are looking for. Market cap is just the total number of shares outstanding, multiplied by the current price of the stock. Most analysts use this as the measure of a company's size. For our dividend investing purposes, we want strong stable companies, and bigger companies are generally safer than smaller ones, so for market cap, select stocks that are at least $2 Billion.
Valuation - This is how much the market is paying for a company's earnings stream. For this, we actually want a low valuation, because that usually means that a company's stock price has been beaten down relative to its earnings. The price to earnings ratio (P/E) is a widely available indicator that can help you assess valuation on a free dividend stock screener.
A couple of free dividend stock screeners that you can try to help you find the best dividend stocks are at MSN.COM and FINVIZ.COM.
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