7 Tips for Choosing Dividend Stocks

May 7th 2016

Research, Research, Research

Perhaps the most important aspect of picking your own dividend stocks lies in a viable research method. Study a firm's historical dividend payouts, past stock performance and the current market. Does one particular company have a history of paying dividends every quarter? Do any trends point to a particular stock, industry or sector taking off several years into the future? Many online websites allow you to create an account where you compare various stocks side by side to determine which ones offer better returns on investment.

Not All Stocks Pay the Same

Determine how often you want to get paid in dividends. Some stocks pay quarterly, others pay every six months and others pay yearly. Examine a company's investor relations page to see more details on when a company doles out earnings per share.

Factor in Time

Determine the stocks you pick based on how much time you plan on holding shares of a particular company. If you can wait 25 years or more, stocks with lower dividends and higher risks may turn out to be better investments. For example, a stock starts at $10 per share and pays quarterly dividends of 5 cents. Thirty years later, the stock has a price of $50 per share and pays quarterly dividends of 15 cents. If you own 1,000 shares of this stock, you can make $40,000 by selling the stock since you held onto them for so long. However, you also made $200 per year when you first bought it compared to $600 per year when you sold it based on quarterly dividends. Dividend stocks pay better over long-term investing.

Dividend Raises

Firms with consistent dividends are great. However, companies that consistently raise dividends every year represent better investments. Look at the dividend payouts over the past 25 years. If a stock gradually raised dividends over that time period, you may have a solid investment on your hands.

Older Companies

Older companies tend to have good track records of dividend payouts, even when the economy turns sour. Consider investing in stocks for these firms if you want consistent, positive results. Volatile sectors such as technology, energy and commodities may not represent the best investment for long-term, stable growth.

Check to See Who Else Invests

A company may have more stability when many other shareholders, especially institutional investors, have stakes in the company. For example, when a firm has several companies, high-level investors and brokerage firms that have owned stock for dozens of years, chances are that business has a reputation of stable, regular payouts. Every publicly traded company lists holders of record for stocks, so look into what institutions own shares and for how long.

Stock Ratings and Lists

Many niche companies have online ratings for stocks based on a company's performance and the overall market. Find a few trusted researchers and follow what these ratings systems say. Check lists of stocks known as "Dividend Aristocrats" and "Dividend Champions." Companies on the list of Dividend Aristocrats delineate stocks that have increased annual dividends every year for the past 25 years. Dividend Champions have paid higher dividends than usual for the past 25 years.


Dividend stocks pay part of a company's earnings to investors as a way to reward shareholders for investing in a business. A board of directors may pay dividends out annually, semi-annually, quarterly or monthly. Not all companies must pay out dividends, and not all publicly traded firms do so with the same regularity. If you are interested in making money with dividend stocks, consider a few principles to help the process go more smoothly.

More in category

Related Content