How to Find Companies With Good Dividends
- Look for stock with a high dividend yield. This is the company’s dividend expressed as a percent of the share price. For example: If a stock is selling at $100, and pays $5 annual dividend, its yield would be 5% (100 ÷ 5 = .05%).
- Find companies that have historically raised their dividends. This is an indication of a well managed strong company.
- You need a company that makes a profit in order to get a dividend. Look at the Return on Equity (ROE) number (see Stocks: Buying, Selling & Researching). ROE looks at net income to shareholders’ equity. Look for companies with rising earnings.
- Larger more mature companies tend to pay more dividends. However, look for the ones that have low debt levels. To determine this look at the debt-to-equity ratio al (see Stocks: Buying, Selling & Researching) so called debt ratio.
- If a company increases its dividends this would signal that management is optimistic about the company’s future profits. It also would probably cause the stock price to rise.
- If a company decreases or eliminates dividends, it would signal that management is concerned about the company’s future. This would probably cause the stock price to go down.
- Usually a company with one or two bad quarters will not reduce their dividend. If they do, as mentioned above, they are probably in trouble.