The Best High Dividend Yield Stocks can be the key to the perfect portfolio… especially for the passive investor. But if you’re not careful, high dividend yield stocks can leave you high and dry. So…
Read this blog post to find out what to look for in the perfect high yield stock.
And as with any type of investment, there are specific risks you can be on watch for when you’re searching for the best high dividend yield stocks, so let’s dive into it…
3 High Dividend Yield Stock Analysis Criteria:
In addition to basic fundamental value, there are a couple of specific things you can look for to feel safe in your high yield dividend. Here are 3 quick things you can look at to get an idea of how safe your yield is:
Dividend History: One of the most reassuring things to come across when you’re looking for the best dividend yield stocks is a strong dividend history. Some companies pride themselves on a solid dividend track record. Click the dividend history link to see a list of companies with the longest paying dividends. And one more thing…
You can also get quotes from Nasdaq.com about the complete dividend history of most publicly traded stocks. This is a great litmus test on how serious the company is about protecting their dividend. But let me tell you how to dig a little deeper.
Dividend Increases/Decreases: Like dividend history, past is precedent when it comes to increases or decreases in dividend yield. Depending on what happens to the company, their dividend policy (and ability to provide a high yield for you) can change drastically over time. It’s always insightful to look for any dividend increases or decreases.
A lot of companies reduced their dividends after the recent financial crisis. But at least that gives you more faith in the companies that held strong with their yield. If they consistently raise their dividend, they might be shareholder friendly in other ways too. Looking at dividend increases and decreases is a great way to add another layer of analysis when you’re looking for the best high dividend yield stocks. Finally…
Payout Ratio: You should always be conscious of the payout ratio when you’re looking for the best high dividend yield stocks. What’s the payout ratio you ask? It is simply the dividends per share divided by the net income per share (EPS works for your back of the envelope analysis). The average payout ratio is around 32%, so anything above that means you’re meandering into high-yield territory. It’s a good benchmark to know.
But I have one word of warning for you.
Really high dividend yield stocks with really high payout ratios might be appealing. But sometimes if high yield looks too good to be true, it is. So payout ratio can also be a red flag. For example: If a company is paying an 85% payout ratio and their business runs into any kind of trouble for more than a couple quarters, there is a good chance they will need to raise cash. And (watch out!) they might cut your dividend to do it.
You can head over to Morningstar and under the “key stats” section for any stock there is a 10 year history of dividend and payout ratio. This is a heat way to see how a company has acted with regards to dividends in recent history. Combining these facts with management commentary can give you good insight into the sustainability of your high yield dividend.
If you’re wondering how to get started on your hunt for the best high dividend yield stocks, I recommend you check out the short video below…
Free Stock Screener For The Best High Dividend Yield Stocks:
This short video shows how you can find high-dividend yield stocks for free on Finviz.com. It’s a great stock screener and I highly recommend you learn how to use Finviz Stock Screeners.
I hope this helped you better understand how you can safely select the best high dividend yield stocks. But enough about my methods, how do you select high dividend yield investments? Let me know in the stock selection tips in the comments below.
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