Dividend Stocks - Characteristics of Good Dividend Stocks
The best Dividend Stocks have easy to understand characteristics.
The characteristics help you analyze the quantitative aspects of the company you choose to invest.
Most important is the numbers are consistent and improving each year.
If the numbers are consistent without increases over the years, it is still a good company.
Even if there was one to two down years over 5 to 10 years period, this company is still worth investing for dividends which will help you create your financial freedom.
Now that you understand that consistency is the most important issue, let us consider the various characteristics.
1.
Dividend Yield - a financial ratio that shows how much a company pays out in dividends each year relative to its share price (the price you buy the share).
In the absence of any capital gains, the dividend yield is the return on investment for a stock.
Dividend yield is calculated as Annual Dividend divided by Share Price you paid.
For example, if you bought the share a $10 and and the annual dividend payment is $0.
50, then the dividend yield is 5%.
There are two different dividend yields to consider.
First is by using the trailing 12 months dividends.
You take the last twelve dividend divided by you purchase price per share to get the yield.
Second is by using the expected dividends for the upcoming 12 months dividing that number by your purchase price to get the yield.
You should know your preferred yield before you start you research.
The higher the dividend yields the better.
This will help get more passive income from dividends to achieve your financial freedom.
Please remember, yields will fluctuate all the time as stock prices move up and down.
Also, the amount of dividend can change for the better or worse.
Please remember to check these points every time you decide to invest.
2.
Sales or Revenue - it is a simple fact, no sales equals no income, no income equals no profits.
Therefore, without profits means dividends cannot be paid.
As an investor, you need to check whether the sales of your company are increasing.
The better the growth rate of sales, the better for your investment as this will lead to more profits which can be paid out as dividends which will lead to your financial freedom.
Please check the trend of the sales of your prospective company before investing.
3.
Profit - also known as earnings or EPS.
Profit helps companies grow and this will lead to more dividends.
More profits equal more healthy company.
The healthier the company the better chances for dividend growth.
Higher dividends give better dividends yields.
Also you will have more money to reinvest the dividends to get your passive income and financial freedom.
There are many ways to measure profitability; the best is Return on Equity (ROE), the higher the better.
4.
Debt - is the amount a company owes.
Of course, the lesser the debt the better it is for dividend income investors as the company will have more money to pay you.
Too much debt can represent a risk to future dividend payments.
The company may go through tough times and earnings drop, therefore affecting the amount of dividend which can be paid.
The company may need to the money to pay down debt and it may not have enough left over to sustain the dividend payments.
The Debt to Equity (D/E) ratio helps you, the investor to quickly see if the debt is too high.
5.
High Free Cash Flow Margins - Cash flow is what business is all about.
Without positive cash flow, the company cannot organically grow their business and will not be able to pay dividends.
Be careful of companies that pay more dividends than their free cash.
Good companies are able to convert a high percentage of their sales into free cash flow which lead to better dividends.
Better dividends and reinvesting them will give passive income and financial freedom.
6.
A Low Payout Ratio - a dividend payout ratio is the yearly dividend per share divided by earnings per share.
The lower the dividend payout ratio, while achieving a high dividend yield, at least 5%, the better the quality of your investment.
Therefore, the higher the payout ratio the greater the danger of the dividend being cut.
For example, company paying out 80% of its earnings in dividends every year will have to cut its dividends if there is a severe business down turn.
That is why you also have to look for companies whose sales are growing or at the worst not dropping.
Also a low dividend payout ratio leaves room for the dividend to grow.
For income investors with long term strategy, it is better to invest in companies paying moderately above-average dividend yields but with the potential for significant dividend growth over time as this will help you get more dividends.
This will give you more passive income.
You can use the dividends or reinvest them to grow and income baser to achieve your financial freedom.
In conclusion, you would think everyone only cares about the price of stocks that they own.
Who wants to lose money? Well, dividend investors care a lot less if the market has a downturn.
Dividends are investor's best friend in the stock market.
Dividends silently help you build passive income and your financial freedom.
Dividends are not sexy enough to get attention.
They are not "the next hot investment" or do not make millions in the short term.
It is certainly true that many dividend paying companies have not escaped the market downturn.
Especially financial institutions have been hard hit.
Yet it is important to remember over the long term, investing for dividends is the best and easiest investing strategy and has historically given the highest total return.
Dividends are cash in your pocket.
You do not have to sell a share of stock to get dividends.
Most dividend programs are persistent.
Companies with well-established programs rarely cut or eliminate their dividends.
They are closely watched and reported making information easy to obtain.
Once dividend patterns have been established any changes are instantly reported.
Over time you will be able to make a transition from paycheck from working hard to dividend paycheck which will give you the financial freedom to when you want and not because you have to.
The characteristics help you analyze the quantitative aspects of the company you choose to invest.
Most important is the numbers are consistent and improving each year.
If the numbers are consistent without increases over the years, it is still a good company.
Even if there was one to two down years over 5 to 10 years period, this company is still worth investing for dividends which will help you create your financial freedom.
Now that you understand that consistency is the most important issue, let us consider the various characteristics.
1.
Dividend Yield - a financial ratio that shows how much a company pays out in dividends each year relative to its share price (the price you buy the share).
In the absence of any capital gains, the dividend yield is the return on investment for a stock.
Dividend yield is calculated as Annual Dividend divided by Share Price you paid.
For example, if you bought the share a $10 and and the annual dividend payment is $0.
50, then the dividend yield is 5%.
There are two different dividend yields to consider.
First is by using the trailing 12 months dividends.
You take the last twelve dividend divided by you purchase price per share to get the yield.
Second is by using the expected dividends for the upcoming 12 months dividing that number by your purchase price to get the yield.
You should know your preferred yield before you start you research.
The higher the dividend yields the better.
This will help get more passive income from dividends to achieve your financial freedom.
Please remember, yields will fluctuate all the time as stock prices move up and down.
Also, the amount of dividend can change for the better or worse.
Please remember to check these points every time you decide to invest.
2.
Sales or Revenue - it is a simple fact, no sales equals no income, no income equals no profits.
Therefore, without profits means dividends cannot be paid.
As an investor, you need to check whether the sales of your company are increasing.
The better the growth rate of sales, the better for your investment as this will lead to more profits which can be paid out as dividends which will lead to your financial freedom.
Please check the trend of the sales of your prospective company before investing.
3.
Profit - also known as earnings or EPS.
Profit helps companies grow and this will lead to more dividends.
More profits equal more healthy company.
The healthier the company the better chances for dividend growth.
Higher dividends give better dividends yields.
Also you will have more money to reinvest the dividends to get your passive income and financial freedom.
There are many ways to measure profitability; the best is Return on Equity (ROE), the higher the better.
4.
Debt - is the amount a company owes.
Of course, the lesser the debt the better it is for dividend income investors as the company will have more money to pay you.
Too much debt can represent a risk to future dividend payments.
The company may go through tough times and earnings drop, therefore affecting the amount of dividend which can be paid.
The company may need to the money to pay down debt and it may not have enough left over to sustain the dividend payments.
The Debt to Equity (D/E) ratio helps you, the investor to quickly see if the debt is too high.
5.
High Free Cash Flow Margins - Cash flow is what business is all about.
Without positive cash flow, the company cannot organically grow their business and will not be able to pay dividends.
Be careful of companies that pay more dividends than their free cash.
Good companies are able to convert a high percentage of their sales into free cash flow which lead to better dividends.
Better dividends and reinvesting them will give passive income and financial freedom.
6.
A Low Payout Ratio - a dividend payout ratio is the yearly dividend per share divided by earnings per share.
The lower the dividend payout ratio, while achieving a high dividend yield, at least 5%, the better the quality of your investment.
Therefore, the higher the payout ratio the greater the danger of the dividend being cut.
For example, company paying out 80% of its earnings in dividends every year will have to cut its dividends if there is a severe business down turn.
That is why you also have to look for companies whose sales are growing or at the worst not dropping.
Also a low dividend payout ratio leaves room for the dividend to grow.
For income investors with long term strategy, it is better to invest in companies paying moderately above-average dividend yields but with the potential for significant dividend growth over time as this will help you get more dividends.
This will give you more passive income.
You can use the dividends or reinvest them to grow and income baser to achieve your financial freedom.
In conclusion, you would think everyone only cares about the price of stocks that they own.
Who wants to lose money? Well, dividend investors care a lot less if the market has a downturn.
Dividends are investor's best friend in the stock market.
Dividends silently help you build passive income and your financial freedom.
Dividends are not sexy enough to get attention.
They are not "the next hot investment" or do not make millions in the short term.
It is certainly true that many dividend paying companies have not escaped the market downturn.
Especially financial institutions have been hard hit.
Yet it is important to remember over the long term, investing for dividends is the best and easiest investing strategy and has historically given the highest total return.
Dividends are cash in your pocket.
You do not have to sell a share of stock to get dividends.
Most dividend programs are persistent.
Companies with well-established programs rarely cut or eliminate their dividends.
They are closely watched and reported making information easy to obtain.
Once dividend patterns have been established any changes are instantly reported.
Over time you will be able to make a transition from paycheck from working hard to dividend paycheck which will give you the financial freedom to when you want and not because you have to.
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