How to Identify the Best Dividend Paying Stocks

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There are a ton of publicly traded companies that pay a quarterly or monthly dividend. But how do we go about finding the best dividend paying stocks? It is not as simple as running an online search for the companies with the highest dividend yield producing a double digit return. While that type of stock may seem very appealing to most investor's, there is probably something questionable happening with this company. Blindly chasing the top dividend paying stocks based exclusively on the yield is a great way to lose your money. Here are a few helpful steps you can use to find the best dividend paying stocks to add to your portfolio.

Things You'll Need

  • Computer
  • Internet Access
  • Look for published lists of dividend paying stocks from reputable organizations like the Standard & Poor's. The S&P's list of dividend aristocrats, for example is an excellent starting place with a filtered down list of some of the best dividend paying stocks in recent years. In fact, the list includes companies who have had a history of raising their dividends for over 25 years.

  • Find a quality stock screening tool where you can add additional financial and technical criteria to narrow down your search for the best dividend paying stocks. For example, you could screen stocks that have a yield of at least 3% and a P/E ratio of less than 20. This search would return stocks that fit that criteria that could be taken and narrowed down further with additional research.

  • Scan various financial forums online to get an idea of what others feel are the best dividend paying stocks. While you shouldn't use the analysis completed by others to make your decisions for you, it helps to see what others are saying. It is true that there are many people pumping stocks on these types of forums, but there are some qualified investors posting great content. Just be sure to complete your own research to back up the statements of others.

  • Search for blogs or financial websites that post material about top dividend paying companies. Again, don't take this information to be 100% accurate that you may read on these sites. However, there are often tips and hidden gems that you may uncover as a result of following some of these websites.

  • Research the historical dividend increases or decreases for companies, once you have a list of your top dividend paying stocks defined. Any publicly traded company that has a history of raising their dividend payments annually for several consecutive years can be a very attractive fit for your portfolio. However, keep in mind that you are only looking at the past and it is not an absolute indicator of what will happen in the future. Just take a look at some of the banking stocks in recent memory.

Tips & Warnings

  • Setup a dividend reinvestment plan with the stocks that you purchase as a way to put your earnings to work for you.
  • Be cautious about stocks with an exceptionally high dividend yield as there may be something more to the numbers. If you are still intrigued by these stocks, complete extensive research on the company before you decide to buy.
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