Instead of blindly investing in the top dividend-paying stocks based on yield, look to other criteria instead. While using a company's dividend yield is an important factor, there are also many other criteria that you can use. Follow these simple steps as a guide to avoid losing money when investing in the top dividend-paying stocks.
Build a list of top dividend-paying stocks that can be used to begin fundamental and overall analysis of a company. Look for quality dividend-paying stocks from existing sources like the S&P 500 Dividend Aristocrat list or by reviewing the top holdings of an ETF dividend-paying stock. You can also run a preset stock screen looking for sound dividend investment opportunities.
Narrow down your list of top dividend-paying stocks by filtering out some of the weaker performing stocks that you have found. Instead of focusing strictly on dividend yield, look for other factors, such as P/E ratio and future growth projections, to get a good idea of the total health of a company. Not sure what criteria to use? Look for stock screen criteria that is published from reputable sources that you can use in your own search.
Check the historical dividend data for stocks that have made your final cut. While the past will not guarantee the future, looking back at a company's past will go a long way in defining the top dividend paying stocks. For example, if a company has a current yield of 10 percent, but has a history of cutting dividends, then you may want to think twice about it as an investment.
Look at projected earnings growth to define the top dividend-paying stocks. Looking at the past is a great tool that can be used to find historically healthy stocks. However, reviewing future looking data will define where a company is likely headed. If a company has a bright future, then most of the time it means a nice dividend is in the future, as well.
Identify various price points you would feel comfortable buying and or selling top dividend-paying stocks. You may have found the best stock in the world, but if you buy at the peak then it could turn out as a very bad investment. Depending on when you bought, it could take months or years to recoup your losses if you buy at the wrong time. Obviously, nobody can predict the future, but try to avoid overpaying for a stock, regardless of its dividend yield.