How to Pick High Paying Dividend Stocks

Dividend paying stocks are one of Wall Street's hidden gems. They are generally considered an investment for older, retirement minded investors, but they can also provide a substantial boost to any portfolio if chosen correctly.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

• Computer with Internet access
• Some knowledge of the stock market

1. Begin by screening the stock market as a whole for stocks that pay a dividend. A free stock screener can be accessed at MSN Money, or if you have an online brokerage account, it's very likely you have one available for use there.

2. Input several variables that are important to you. For my own portfolio, I would choose: 1) a dividend yield greater than 5.0%; 2) a P/E ratio as low as possible; 3) a company with EPS growth estimates faster than industry competitors; 4) a debt to equity ratio lower than industry average.

3. Review the results, and beware of companies paying a dividend higher than 7%. Some stocks are Real Estate Investment Trusts (REITs), which are required to pay high dividends, or various natural resource trusts that pay similarly high dividend yields. However, a high dividend yield can be indicative a company has had a massive decline in share price, so further charting detective work should be done.

4. Review the stocks suggested. If you want diversification, pick several companies from a wide range of sectors. If you want sector specific stocks (energy companies or environmentally friendly timber companies), choose several companies that belong to the same industry.

5. Check the balance sheets and future earnings estimates of the companies that pass the screen. Future earnings can be hidden in infrastructure costs, stock buy back programs and a myriad of other factors, so do your research. Check the last year of press releases for major events, as well as look for any bad press from Wall Street.

6. Check the analyst recommendations for each stock you choose. One analyst's upgrade or downgrade can cause large fluctuations in stock price, so be sure to choose a stock that is in favor.

7. Check the company's history of dividend payments. Specifically, check if the dividend has risen over the last 5 to 10 years. Dividend increases are a great way of detecting a steadily growing company, and is a sign of the company's overall economic health.

Tips & Warnings

• If you are inexperienced in stock picking, it is advisable to check your stock picks with a seasoned investor, a financial adviser or purchase a mutual fund so a professional money manager will manage your capital.
• Review the company news and financial data each month. If possible, follow the company news every day for changes in industry news or company related financial difficulties.
• Pick dividend companies that are also growing their earnings, so any growth can be obtained from the increase in share price, as well as the dividend yield increasing over time.
• Investing isn't for everyone, so make sure your stock picks are excellent choices for your investment goals, and do not be shy about asking a professional or trusted friend or colleague for advice when needed.

Resources

• MSN Stock Screener

[CaseyCarlton]

on 2/24/2009 Nice job. I have a lot of dividend stocks. Free money, and hope the market goes up. 5 stars and a recommend

[mattcastle12]

on 2/24/2009 Glad you liked it. Feel free to ask questions.

[MrsPerrin]

on 2/24/2009 This is really good.

[02SmithA]

on 7/6/2008 Good info. You have to be careful not to just look for the top dividend yields, since those are usually companies that could be cutting their dividend soon.

[mgmt85]

on 4/6/2008 Awesome article with great information!! Keep it up.