How to Find the Best Dividend Stocks

Invest in dividend stocks in you want an additional income stream.

Purchasing the best dividend stocks is a smart way to invest your money. Investing in companies with strong balance sheets and healthy cash flow can grow your money for many years. Dividend-producing stocks typically reward investors with quarterly or monthly dividend payments. High growth stocks, on the other hand, typically use their earnings to reinvest in their business so they continue accelerated growth. While investing in growth stocks can be very profitable, putting your money into the best dividend stocks is a long-term, conservative approach to investing.

Things You'll Need

• Computer
• Internet access
• Online discount broker

Instructions

1. Select a free stock screening tool to help you search for the best dividend stocks. Look for stock screening tools that include criteria such as current dividend yield percentage as well as other functional attributes like future growth estimates. Your online discount broker may be able to provide you with these tools, or you can find some useful free screeners online as well, such as at Yahoo! Finance.

2. Identify a list of the best dividend stocks by reviewing published lists of quality dividend producers. Standard & Poor's, for example, produces a list of "Dividend Achievers" each year for companies that meet strict criteria. The S&P Dividend Achiever list is made up of companies that have increased their dividends for at least 25 consecutive years.

3. Combine your stock screen and functional research with technical and chart analysis. You may have several high-yielding stocks to choose from, so conducting some technical analysis may help you to narrow down the list. This analysis could also help to identify when a stock is oversold, for example, which may be an excellent point to buy the stock at a discount.

4. Look for companies with strong balance sheets that have a history of raising their dividend consistently over the years. Be cautious of companies that have a huge, one-time dividend payment or who significantly raise their dividends. Chances are they will not be able to keep up with this rate and you will overpay for the security.

5. Subscribe to free analysis on the best dividend stocks from various blogs and financial websites, such as The Motley Fool. Be careful in your search on which sites to follow as some may only be interested in selling you something. You should never use another investor's analysis solely to make your decision. However, these sites can be used to put a dividend stock on your radar or help you narrow down your search.

Tips & Warnings

• Setup a direct reinvestment plan (DRIP) with your portfolio of best dividend stocks to constantly build and grow your wealth.

• Don't get in the habit of chasing stocks with the highest yields. Often times when a stock has a double-digit yield, it means there is probably a dividend cut on its way.

References

• The Motley Fool
• Securities and Exchange Commission

Resources

• Etrade
• Charles Schwab
• Fidelity Investments