What are Stock Dividends [4 Factors to Find Best Dividend Stocks]

Few investing strategies are as popular as
stock dividends, even Lincoln loved him some dividend stocks. Ok, maybe not but by the end of this video
you’ll have four factors you can use to find dividend stocks that not only put cash
in your pocket but regularly increase their payout. In fact, I’ve used these four factors to
build a portfolio that provides a 4% annual cash return plus double-digit price returns
every single year. We’re talking dividend investing today on
Let’s Talk Money. Joseph Hogue with the Let’s Talk Money YouTube
channel where we’re creating the financial future you deserve. I want to send a special shout out to everyone
in the community, thank you for taking a part of your day to be here. If you’re not part of that community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. Dividend investing is one of the few strategies
to consistently, year after year, beat the rest of the market. A famous study by Ned Davis Research over
nearly 40 years of stock market returns showed companies that regularly increased their dividend
payment blew the rest of the market returns out of the water with a 9.5% average annual
return. Even stocks where the dividend payment didn’t
increase regularly returned an average 7.2% over the period way above the 1.6% return
investors got from stocks that paid no dividends. I’m going to start off with the basics of
dividend investing, what are dividends, but then I’ll share four factors I use to find
dividend stocks. You won’t find these four factors on any
stock screener. You won’t find the strategy on any website
but that’s why it offers those solid returns every year. I’ll also walk you through how to use these
factors to find stocks on any online investing site. This is just a part of what I talk about in
Step-by-Step Dividend Investing, a complete guide to dividend stocks and income investments. In the book, I not only reveal the strategies
that will create a portfolio of dividend-paying stocks but I also walk you through investing
in other income-producing assets that provide more cash flow at lower risk. So I’ll talk a little about what are stock
dividends and why dividend investing is a major part of my portfolio but I really want
to get to those four keys to finding dividend stocks. It’s important to understand those basics
of dividends but it’s so much more fun to talk about finding those stocks that are going
to put cash in your pocket every few months, right? In fact, if you’re already investing in
dividend stocks, I’d love to hear about your favorite strategy or your favorite dividend
stocks right now. Just scroll down and let us know in the comments,
how do you find dividend stocks and your one or two favorite picks. So Any successful company has a choice for
it’s profits, either reinvest for growth or return those profits to owners. In the early years when management is laser-focused
on growing the business, everything may be reinvested but over time, more and more of
those profits start going back to owners or shareholders of the company. That’s exactly what stock dividends are,
pure and simple. Dividends are your reward for investing in
great companies. Most companies pay dividends on a quarterly
basis, once every three months. Management reports to the board of directors
about cash flow and business growth then the board approves the cash return to investors. Now this dividend decision is hugely important
and most investors don’t realize this but paying a dividend is a big decision. You can’t just start a dividend and not
be able to maintain it because investors will depend on that cash payment. Paying a dividend means planning out years
in advance to make sure the company is going to have the cash flow to maintain it and even
increase the payout. That’s one of the biggest benefits to investing
in dividend stocks, that stability and what it means to the company’s management. Management knows it has to produce the cash
flow to meet this dividend or there’s gonna be hell to pay. Studies have proven this, that companies that
pay a dividend are less likely to go after projects with questionable returns or to make
those expensive acquisitions of other companies. Management is forced into this good stewardship
of your money. There isn’t as much free money sloshing
around so management has to reinvest it more efficiently. It’s a great advantage of dividend yielding
stocks but the best benefit is just in a higher return on your investment. Dividend stocks just offer higher total returns
than other stocks not only from the cash payment but on price returns as well. That cash payment from dividend stocks is
a big part of the return from stocks. In fact, in decades going back to 1940, dividends
have accounted for as much as half the return on stocks. That means, not understanding dividend stocks
or not using them in your portfolio, you could be missing out on the best part of the market. I love talking about dividend stocks and we
could easily go on for hours talking about why dividends need to be a part of your portfolio
but what I really want to get into are some of the factors I look for in dividend stocks. Just throwing your investment in any stock
that pays a dividend isn’t going to get you those sweet returns. In fact, there are a lot of dividend stocks
out there that are more risk than they’re worth and where the cash payment is at risk
of being cut. So I want to show you the four factors I look
for, four factors that have helped me get a 4% cash yield on my portfolio plus a double-digit
price return. That’s a dividend yield twice as high as
the broader market and price returns every single year. First, and this isn’t one of the four factors
but it’s extremely important. You have to understand the tradeoff between
dividends and growth in a company. Once you understand that decision management
has to make with paying the dividend or reinvesting profits then you can look for these factors
that will help you get both cash and price return. The idea is to find companies doing both,
returning cash to investors through the dividend but still with the capacity to reinvest and
grow the company. So let’s look at these four factors and
then I’ll show you how to use them and we’ll find a few great dividend stocks available
right now. My first dividend screen here is to start
with stocks paying a 3% yield or higher. The broader market pays about a 2% dividend
so anything lower than three percent and I’m not interested. A dividend yield over 3% tells me that the
company is serious about cash return to investors. The next factor I look at is the payout ratio
which is just the year’s dividend divided by the earnings per share, more accurately
you should be looking at the total dividend payment divided by cash flow from operations
or operational income because it’s a purer way to look at the company’s earning power. I like using cash flow from operations because
it’s less easily manipulated by management than earnings. Anyway, you want to see a company that is
paying out less than 60% of its earnings per share as dividends. I know that you’re looking for high dividend
returns but we have to get back to that tradeoff between dividends and reinvesting in the business. A company returning more than 60% of its profits,
its earnings, as a dividend to investors just isn’t going to have the cash left over to
grow. Remember that long-term average return from
companies that regularly increased their dividend payment, it was 32% above even the average
return on companies that paid a dividend but didn’t regularly increase it. Well saving some of those earnings back is
how they grow and increase their dividends. From this list of high dividend payers and
companies keeping something back for growth, you check the dividend history over the last
five years and especially through the most recent recession. This is our third factor and one of the best
for long-term success with dividend stocks. It’s one thing to pay a solid dividend when
the economy is on solid ground and business is booming, it’s something else entirely
to commit to that dividend history even in bad times. So I’m looking for stocks that increased
their dividend regularly or at least kept the payout stable through the last recession. Our final factor, and this is one that is
almost universally overlooked by dividend investors, is I look at the cash yield on
the buyback program. So besides returning cash to investors through
a dividend, companies can also buy back their own shares. They use that extra cash to take shares off
the market and a lot of investors don’t realize it but this is also a cash yield just
like dividends. Taking those shares off the market means that
profits are spread across fewer shares so those shares of stock you own are more valuable. In fact, over the last decade, these share
repurchases have become a big part of the total cash return for investors. Companies in the S&P 500 are returning about
$400 billion in dividends to investors every year but are also buying back over $600 billion
in shares. Finding those companies with aggressive share
buyback programs is how I get those double-digit price returns every year even on stocks that
pay out a 4% dividend yield. Now you’re not going to find all four of
these factors on a simple stock screener and that’s what makes them so powerful. I’ll show you next how to get started and
how to find each of the factors but there is some legwork involved, you can’t just
plug these into a website and expect it to spit out a couple of great dividend investments. But the fact that you can’t find these factors
in any basic stock screener is why it still works in producing those returns year after
year. So here we are on the stock screener at Morningstar.com. You can use these dividend factors on just
about any online investing site but I like to start my search using the screener on Morningstar
because it narrows down the list faster. Here I’ll search for stocks that pay a dividend
yield of 3% or more, those companies really committed to returning cash to investors. Next I scroll down here to payout ratio and
set this to stocks that pay less than 60% of their income as a dividend. Now there’s no screen for dividend history
but I can look for dividend growth or companies that have increased their dividends over the
past five years. So setting this percentage growth to 5% or
more finds me companies that have consistently increased their dividend payouts. 222, that’s still a pretty large list but
here’s another very important secret to dividend investing. If I were to just look at things like dividend
yield and payout ratio then the majority of the stocks I see are going to be in a very
few sectors like Utilities, Consumer Staples and Telecom stocks. These types of companies just by virtue of
the business they’re in tend to pay out higher dividends than others. So if I just invested in companies from this
list, my portfolio is going to be over-exposed to these specific sectors. What if new regulations are passed that makes
these sectors less profitable or what if something in the economy changes and these types of
businesses are hit hard. My portfolio will be destroyed! You need to invest in dividend stocks from
different sectors. That way, you get diversified payouts and
a hit to any one or few sectors isn’t going to ruin your portfolio. So I go back into the screener and I work
through each sector and you see it narrows the list down a lot. If I click through, I have a short list of
stocks I can check for those four factors. Understand, the screener here only looks for
yields above 3% and payout ratios below 60% and dividend growth so you have to look into
each of the individual stocks to compare them against each other. You can also look to see how much each company
is returning to investors through a share buyback program. There are 11 sectors you need to look through
so narrowing your list down in each sector is going to take a few hours but this is the
work that WILL earn you higher returns. If this was something that just took a couple
of minutes, then everyone would be doing it and nobody would make any money. This strategy is going to get you started
dividend investing but if you’re really serious about that cash return, check out
that link in the description below for Step-by-Step Dividend Investing. I not only detail everything you need to find
great dividend stocks but I show you how to find solid investments in other income-producing
assets like master limited partnerships and real estate investment trusts. In fact, these other assets can produce higher
income yield and return with less risk than dividend stocks. Diversifying your portfolio in dividends,
MLPs and REITs maximizes your cash return while minimizing those stock market risks. This has been a longer video than usual but
I love talking about dividend stocks and I think it’s a great opportunity for investors. Use the four factors to find your dividend
investments and I’d love to hear your dividend investing strategies so scroll down and let
us know in the comments how you pick dividend stocks. Join us in the Let’s Talk Money community
by clicking on that subscribe button. We’re here Mondays and Wednesdays with the
best videos on beating debt, making more money and making your money work for you. If you’ve got a question about money, just
scroll down and ask it in the comments and we’ll answer it in a video.

42 Replies to “What are Stock Dividends [4 Factors to Find Best Dividend Stocks]”

  1. What are your favorite dividend stocks right now? What factors do you look for when picking dividend yielding stocks?

  2. Having a payout ratio below 60% is a good way to make sure that the dividend is sustainable and has room to grow in the future. Glad you covered this!

  3. I always feel so overwhelmed with this! Thanks for breaking it down to where it's easy to understand!

  4. Just bought your book. I always want to learn more – and you can never read/learn enough. I agree with all you have to say. I discovered your Channel this week – good stuff. As you know I agree with you on GE. Not all agree with me on GE. GE will be a good long-term stock., once they get rid of excess baggage if you will.

  5. Very well done Joseph! I had seen a few of your other videos and was watching YouTube on my Smart TV and it suggested this new video of yours. I like quality content that you can sink your teeth into and you provide that so it got my subscription.

  6. I don't have a broker , I invest in the market thru apps Acorns, Robinhood, and Stash, Acorns automatically reinvest my dividends, I bought Ford Motors on my Robinhood app it paid me $0.28 and $0.15, CYS Investment a REIT paid me a $0.22 and I'm getting another $0.22 this month. My Stash paid me dividends and I reinvest them even it's a $0.01 dividend. I reinvest my dividends wither it's the market is up or down. I read books and watch videos that reinvest your dividends is good. I'm reading a book called All About Dividend Investing by Don Schreiber and Gary E. Stroik. If you book at the library, I'm definitely going to read it.

  7. Do you ever consider market cap as a criteria for purchasing a dividend stock? For example, is a $100B company any better or worse than a $10B company?

  8. I have been interested in dividend stock investing for years now. I haven't started simply because up until recently I had far too much consumer debt. I'm close to having that paid off and will then start investing, this video has a very simple (not easy) way of looking at stocks and deciding which ones you need to buy.

  9. Great video, I agree! Shares I’m buying into this year include PG, KMB, JNJ, MMM, WM, UPS, KHC, and PEP. Some are better valuations than others right now but I feel pretty good about all of their long term dividend prospects 😀

  10. In my personal view apple is a great dividend stock. with a payout ratio under 30% and a growing yield. I know its known as a growth company but if mr.buffet himself is buying it, then apple somehow hold value.

  11. In my current tax bracket, I'm not a fan of dividends, but I'll welcome them when I'm early retired and potentially in the 0% bracket for qualified dividends and long-term capital gains. Cheers! -PoF

  12. I love these videos. Joseph really knows investing – and he's got top notch credentials!! You must subscribe! For investors who don't what to pick stocks. Try dividend achiever ETFs or mutual funds. These are companies that have raised dividends for many years.

  13. On one of the videos about stock market lies, you mentioned that one should try to have about 50% to 60% of ETF in one portfolio and the rest of individual stocks (about 30% to 40%). So, what should be the percentage of the portfolio should contents dividend stocks and would the dividend portion be part of the ETF or individual stocks. I am assuming be looking at these 4 aspects of dividend stocks, one would be buying individual dividend stocks?

  14. Never seen someone lay out information like that, with it being so easy to understand. You definitely are a great teacher.

  15. I have a couple of mreits for their crazy high dividends – i will ride them up and down like a roller coaster …. weee!!!!!

  16. i'm a newer investor i recently turned 20 so i don't know much for what to look for when looking for dividend stocks i just look at Div/yield on the Robinhood app for all the companies i think about investing in. My personally favorite stocks at the moment are MPW , MRK and PG

  17. I have been buying Pepsi and Coke since they were in high teens and low 20s. They have always been my favorites. I have made significant returns in the form of dividend and gains as well. My reasons why I pick companies like these, simple, I understand this business model and have had these products all over the world. Airforce veteran. I do invest in companies like Johnson and Johnson, Procter and Gamble. General Mills as well. Happy investing…

  18. I'm just getting into dividend stocks, I'm 41, and I'm having two main questions. 1- do you recommend a blend of high and low (maybe less risk) yield stocks? 2- how many stocks should you hold at any one time?

  19. Great video. For retired people dividend paying stocks are the way to go. the only problem the market is overvalued and a correction will be coming. so what does a retired person do to be safe?

  20. The best thing about owing dividend stocks is if you have a losing position. It's much easier to hang on to a loser when you're money in jail is getting paid. I also feel dividend stocks always come back faster than non dividend stocks.

  21. Ok first off I'm new to investing so my details will be brief but want to thank you for the advice in REITs, and dividend stocks also I'm low income but want a better tomorrow. I invested $500 in GAIN and since watching your videos my portfolio is green after some big losses I like Gain because it's affordable for me any other advice on how to maximize on lower income investing love your advice go green

  22. You mentioned you can't find all of the informative in 1 spot, but you only mentioned Morningstar. What other sites or programs do you use to narrow out more stocks and ensure the dividend stocks are stable?

  23. Strong study Dividends are one thing but dividends with capital appreciation or no loss of capital is another you have to have you have to watch out for your Capital not being lost in preferably or Capital growing while you're also getting dividends and growing dividends can you all come in a little bit on that please when you get a chance

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