A Simple Checklist for Picking Great Dividend Stocks

May 9, 2019

Richa Agarwal, Research analyst

On Monday, I told you about how dividend stocks can boost your returns better than you can ever imagine.

So, should you go out and buy the next high dividend stock you see?

To answer this question, let's look at dividend stocks a little more closely...

Investing in stocks that pay healthy dividends may be a great idea.

But all high dividend paying stocks are certainly not made equal, and not all are the proverbial golden-egg laying goose.

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There are some important points to keep in mind while selecting stocks for their rich dividends...

A good place to start would be to study how the company earns its revenues. Are its revenues stable or are they highly cyclical? For this, it is necessary to understand whether the business of the company is stable or volatile, cyclical, based on too much debt, etc.

Look for the stable business. Because if the company's own income is dicey, then its dividend stream will eventually follow suit.

The second question to ask yourself is how does the company manage to keep its cash flows stable and growing? In other words, what competitive advantage does the company enjoy that it will not only be able to keep its cash flows stable but also be able to grow them?

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The competitive advantage helps the company build a safety moat around itself. This moat would protect the business from competition. And if the company is able to use its competitive advantage to widen the moat over time, then it is the perfect business to be in.

Another question is whether the company is able to grow its earnings or not. If it has stable cash flows and is able to grow them, then it should ideally follow that earnings are growing too.

But if the company is growing its earnings and not its cash flows, then it could be possible that it is manipulating its earnings. This could be risky. If cash flows don't grow, then it will be hard for the company to pay out a growing dividends stream.

The final question is the risks associated with the company itself. For this you need to question things like competition, management honesty, vulnerability to technological disruption, management's capital allocation skills, etc.

And of course, all said and done, a high dividend yield doesn't necessarily mean a good stock price.

You need to see whether the company is available at a cheap valuation compared to its fundamentals or not. For if you pay too high a price for a good dividend stock, then in the long term your returns would be miniscule, if not negative.

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Only when you buy a good stock at cheap valuations will you able to maximize your long term wealth from yearly dividend flows to your bank account.

Investors would do well to use this checklist next time they want to buy stocks purely for dividends.

Once again, in a nutshell, to find good, high-dividend paying stocks - ask these questions:

  1. How does the company earn its revenues?
  2. How does the company keep its cash flows stable and growing?
  3. Is the company able to grow its earnings or not?
  4. What are the risks associated with the company itself?

Sounds like too much work?

What if you could get a filtered, neatly compiled, ready list of dividend stocks with all this dirty work already done for you?

Fortunately, right now as we speak, the stock market has quite a few potential wealth compounders with lucrative dividend yields. And these could create some great cash flow streams for you from their growing dividends over the long term.

If you'd like in on the action, check out my latest report released yesterday - Steady Income Small Caps - to get your hands on precisely such stocks.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor and Research Analyst, Hidden Treasure

PS: To build a cache of cash, take a look at Richa's newest report just released, Steady Income Small Caps. Click here to get access and catch hold of the dividend-paying opportunities now.

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2 Responses to "A Simple Checklist for Picking Great Dividend Stocks"

s.k.limaye

May 9, 2019

9433722046
Why are there no articles from Mr Vivek Kaul ? We are missing him !

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sankar iyer

May 9, 2019

The Free down load is not happening , Throws out error as ... '' you will need a new app to open this pgs

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