Should You Buy These Dividend Stocks?

Let's face it -- most of us are always on the lookout for some great stock recommendations. We're all looking for the next home run. So when I'm reading a respected publication that offers a list of stocks, I tend to pay attention.

Dividend investing is hot right now. Lots of articles, both here at the Fool and elsewhere, are talking about dividend-paying stocks and recommending their top picks. Many of them tout high yields, sustainable payouts, and financially strong companies (although some big companies are cutting dividends in the current economic turmoil).

I think it's great that so many people are taking a closer look at dividend stocks, because they're what most of us need for our portfolios. Over many decades, dividends have accounted for a huge portion of overall stock returns. Better still, solid dividend payers tend to be established companies that let you sleep at night.

But hold on ...
Remember that while you might be tempted just to snap up some shares of some dividend stocks, they're not all equally promising. By looking them up in our 125,000-member Motley Fool CAPS investing community, you'll get not only a boatload of information on each stock, but a reading on how investors rate the stocks. They’re not all equal. For instance, take a look at some stocks with attractive yields right now:

Data: Motley Fool CAPS, Yahoo! Finance.

First, look at the recent yields. The highest of this bunch is Whirlpool's, but it's also among the slowest-growing over the past five years. Nordstrom's yield is a little lower, but it has been growing at a much faster clip, more than 25% annually, on average. If it grows at just 20% over the coming five years, it will turn into an effective yield of 14% for those who buy in now. (That's the yield today's buyers will get in five years based on the price they pay today.) 

But neither Nordstrom nor Whirlpool is in the fastest-growing industries, so expecting rapid growth might not be smart. And both are rated only two stars by our CAPS community.

So let's look at the five-star candidates – Kimberly-Clark and Eaton. Both offer substantial yields with robust growth rates and appear more attractive. Just by looking at a few additional details about each candidate, their differences begin to stand out. Look up more metrics (because, after all, a company is about much more than just its dividend), and you'll get an even fuller picture. (Click on the companies’ names above and you’ll get access to the full range of CAPS information and opinions on each stock.)

What to do
In the past, investors looking at a recommended stock list would have had to do a lot of tough digging on their own to gather more information, or might just invest on the fly, without much research. Today, we're lucky to be able to unearth gobs of data and thoughtful opinions on just about every major stock, in our CAPS community and elsewhere on the Internet.

So look before you leap and seek out the cream of every crop presented to you.

There may even be better choices than the ones above. You can screen for them on your own, or let us point you to some potential winners in this promising stock-investing environment. A free, no-obligation trial of our Motley Fool Income Investor service will give you dozens of researched recommendations, many yielding 8% or more. We're a respected publication and this is way better than an ordinary list.