Dividend stocks are an essential part of most investors' portfolios. But to get the best results, you need to pick the best dividend stocks you can find. How can you improve your chances of picking dividend winners?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through the three things to look for in strong dividend stocks. Dan notes that dividend yield is the first thing most investors look at and is in fact important, but counting too much on high-yielding stocks Frontier Communications (NASDAQ:FTR) and Windstream (NASDAQ:WIN) can create big risks. Dan suggests also looking at dividend growth, with well-known companies Procter & Gamble (NYSE:PG) and Coca-Cola (NYSE:KO) having made annual dividend increases for decades and delivering increasing amounts of income to shareholders over time. Finally, Dan talks about the payout ratio and comparing earnings to dividends to make sure a company isn't getting overextended in a way that could force it to make a dividend cut, as Cliffs Natural Resources (NYSE:CLF) did last year.
Why it's so important to find the best dividend stocks
One of the dirty secrets that few finance professionals will openly admit is that dividend stocks as a group handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.
Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Procter & Gamble and owns shares of Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.