It's been proved time and time again that investing for the long haul is a better way to build wealth than short-term trading is. It's also been shown that dividend-paying stocks outperform their non-dividend-paying peers.
When it comes down to brass tacks, dividend investors want both an attractive dividend yield and knowledge that the dividend will be paid year after year. Investors wouldn't be that interested in buying a stock with an 8% dividend yield if that company has to cut the dividend soon after, or potentially ends up in bankruptcy. And so, most people use the earnings payout ratio (the percentage of earnings paid out in dividends) to vet whether the stock has the ability to keep paying that dividend.
In the following video, Motley Fool contributor Todd Campbell tells you why this widely-used ratio isn't actually your best bet -- there's a better option that can better identify whether many stocks are able to keep paying their dividends. Check out the video below to find out about this crucial metric and why it makes better sense for many dividend stocks.
Michael Douglass has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.