Picking the Best Dividend Payers

Picking the best dividend payers requires finding canidates with minimal risk of dividend cuts and that have a high probability that the dividends will increase while you own the stock.

If this happens, you will win two ways. First the yield on your initial investment will increase and even better, the dividend increase often propels the share price higher. Conversely, a dividend cut shrinks your yield and often precipitates a drop in the share price as well.

Picking the best dividend payers is not a hard thing to do. There are a few things you must do in order to start picking the best dividend payers. Here are a few simple step to help you in picking the best dividend payers.

1. When you invest for dividends, you want to get paid. That's point blank. How much dividend is enough? That depends on your needs of course. Disqualify general stocks with less than 4% dividend yields. Of course the higher is better, if the company is capable of sustaining the dividend.

2. Stick with the rich companies. A lot of companies don't pay dividends because they don't have the cash. There are a lot of ways to manipulate earnings but you can't manipulate dividends. Financial problems begin with to much debt. You can avoid the cash strapped companies, by eliminating companies with a lot of debt.

The financial leverage ratio, which is (total assets / shareholders' equity ), is a good all purpose debt measure. A leverage ratio of 1.0 means that the company doesn't have any debt, and the higher the ratio, the more the debt. Debt ratios will differ from industry to industry. What may be considered low in one industry will be considered high in another.

Stick with the firms with below average debt. This rule does not apply to banks. They are in the business of borrowing money. They are also heavily regulated.

Minimizing risk is key to picking the best dividend payers.

3. Stay on Wall Street. The best companies are listed on the three major exchanges: New York Stock Exchange, Nasdaq, and the American Stock Exchange. Don't ever invest is stocks on the pink sheets or bulletin boards.

4. Don't invest in stocks that have been hammered. The best dividend paying stocks trade well above $10 a share. Disqualify stocks trading below $10 a share. Dividend investors don't need the risk.\r

5. Historical Evidence. Some companies consider dividend growth a high priority and others don't. Some companies prefer to pay dividends and other companies prefer to use the money elsewhere. Stick to companies that raise there dividend every year.

6. Dividends will utimately come from a companies earnings. Stick with compnies that can grow theier earnings year after year. Disqualify companies with less than 4%, or more than 15% future earnings growth. You don't want to invest in high growth companies when looking for dividends. Most of the time these companies don't pay dividends.

These six steps help you identify dividend payers worth pursuing. These tests are just a start. You need to learn as much as possible about the company before investing.