Learn How to Find Good Dividend Stocks for regular income. At the time of investing money in a dividend stock, we should plan for companies that have long-term expected earnings between 5% and 15%. They should have strong cash flows, low debt-to-equity ratios, and industrial strength. So finding top-notch can be a challenging job. The dividends are called the payments made by a company to owners /shareholders of the company. The companies distribute profits back to investors and earn a return from investing in a stock. It is the best choice for investors who are looking for regular income. The dividend-paying stocks can meet your income requirements and boost your wealth only if you’re taking risks. They can be increased or decreased at any point without notice.
How to identify Dividend Stocks ? We check the large blue-chip companies with cash flow and profit histories. The companies will have a solid record of paying regular dividends. They have slow and slowly raised their dividends. The longevity of dividend and health of the share price depends on the business as it has good prospects for the future. The dividend stocks have a high dividend payout as the company profit increases with time. If the dividend yield is compared with the fixed deposit interest rate then the dividend yield is less than the interest rate on fixed deposit. To select the companies that have a consistent history of paying dividends. There are some companies that have cut their dividends during a recession. Companies with long and consistent histories of dividend payments are safe for investment.
Dividend Yield
First of all, people check the dividend yield. Some of them follow a higher dividend yield and end up in a trap. The higher dividend yield will result in a decrease in the share price. Here if the share price falls in the recent past it implies an abrasion in the fundamentals of the company. They will hit the earning power of the company and decline in the earning of the company that may cut-down the dividend payout. The yield stands between 4% and 6% depending on market conditions. So the best way is to make a peer comparison. If it is in line with the peers then it is a good choice. So avoids stocks with a lower as well as a higher yield value.
There are many financial ratios that show the company's potential to pay future dividends. The share market wizards and analysts will use these ratios to estimate the future dividend payouts of the companies.
The dividend coverage ratio
It shows how much time is taken for the finance company to pay the dividend to its shareholders from its income. Also the ratio between the net income and the dividend paid to the shareholders. A higher value of the dividend coverage ratio is attractive.
Free cash flow to equity
The free cash flow shows how much money is left with the company after meeting the expenses. Here cash is available to be distributed to shareholders. If a company is paying dividends in the absence of free cash flow then it will not sustain itself in the long run. The company has to pay all the dividends from FCFE.
Debt-to-Equity
It measures the company that uses fixed-cost financing sources. Then the increases and decreases ratio shows a higher dependency of the firm on debt as a source of financing. The higher value of debt to equity will indicate a probable reduction of dividend payout and grow high. The company will not pay the dividend for a while to pay off the debts.
Return on Equity
They will indicate the company's ability to generate the profit on the shareholder money invested in the business for a long period of time. A consistent history of ROE will show that a company can survive long. They can generate a good amount of profit for the long-term.
Dividend growth
The best dividend stock has a strong dividend history and dividend payout will increase steadily. Before investing in the shares of any company we should check its dividend growth rate. If the firm's dividend growth rate is stagnant/decline then don't go for its shares. Select the shares of those companies whose past five years CAGR of dividend payout is between 3% and 5%.
