What Makes A Great Dividend Stock For Dividend Investing?

Link to join StockHub free investing discord server: Want to join our free STOCKHUB discord chat? Here is the link

What makes a great dividend stock for dividend investing that’s what we’re talking about here today guys i hope you’re doing great as always if you’re new here i am jeremy and today i want to share with you guys exactly how to judge a stock if it is a great dividend stock to get maximum gains in the future or if this isn’t such a good stock and there’s a lot of

Things that newer investors in the market get tied into when it comes to dividend stocks things they are looking at that i’m telling you some of these things are the wrong things to be looking at and sometimes you want to be looking at these other things guys so i hope you get a ton of value out it stays video make sure you smash the thumbs up if you do and share

This with somebody that might be interested and a dividend investing by the way i get a question a lot on like what are my favorite stock market apps and websites use on a daily basis and so i created a pdf that goes into those top five so make sure you check out that guys i’ll probably have it as a pin comment i know it will also be linked in the description you

Want that free pdf go ahead and check it out okay so start getting in this how do you judge a dividend stock for basically becoming a great dividend stock okay so the first thing most folks look at when they’re thinking about a dividend stock the first thing they look at is yield meaning what does the dividend yield that stock is giving you is it a 2% is it a 3%

Is it a 4% is it a 5% and this is how a lot of investors mainly judge a dividend stock when they’re getting involved and this is the most overrated thing when it comes to dividend stocks whatever the current yield is for a particular stock out there where there’s 2% 3% 4% it’s the most overrated thing in the world this is what everybody’s looking at and i’m telling

You guys this is not where the game is i’ve seen so many people chase after high yield dividend stocks so those stocks you know that have a six percent yield 7 percent yield 8 percent yield maybe even a 10% yield plus and they think oh my gosh this stock has paid out so much in dividend in the past they’re gonna continue to in the future and they don’t okay and a

Lot of times i’ve seen it where people are chasing these high-yield errs and they lose actually way more money on the stock depreciating over time the stock price depreciating then what they get in dividends and they’ll hold the stock for several years they made a bunch of dividend money but net net they actually lost money because the stock went down more than the

Actual money they got paid out in dividends okay this is the most overrated thing you can possibly look at when it comes to dividend stocks and this is the thing that almost all dividend investors are fascinated by when they look into a dividend stock and i can promise you it’s the biggest mistake you will make just judging a stock based upon oh this stock plays

A 3% yield this one pays a 4% yield the 4% yield is better for me oh this stock plays a 7% yield this one’s only a 2% the 7% better it doesn’t work like that guys because when you own dividend stocks and especially when you’re owning them for several years out there’s so much more that goes into it that can determine whether you get future gains on that stock or

Losses on that stock whether you get future dividend raises over time or actually dividend decreases over time okay so yield most overrated thing when it comes to dividend investing okay past track record history so essentially you can use a website such as yahoo finance to go ahead and look at like how much a company paid in dividends in the past you look at

Years and years and in the past okay and basically look at a company’s past track record for paying dividends this is actually pretty relevant and i love to kind of look at this if you’re looking into a dividend stock and i think it’s important to look for a few things okay you want to look for a company that is not only consistently paying dividends each and

Every quarter but is raising those dividends each and every year you want to really look for those companies that have 10 years 20 years 30 years maybe even 40 years in a row raise their dividends okay now just because a company has a 20 year track record of raising dividends doesn’t mean you’re automatically gonna get a dividend raise next year and for a matter

Of fact it doesn’t even mean the company has to pay dividend in general but generally speaking if a company consistently raises their dividend year in and year out they’re probably gonna continue to do that as long as their business is doing good okay so i think this is a very important thing if you’re judging a dividend stock to look at this past history and

See also  Embarrassing Money Q & A With Lauren | The Financial Diet

Are they consistently raising that dividend or they consistently paying out that dividend for years and years and years now okay very important thing to look at revenue trend also another very important thing to look at when you’re looking at a dividend stock remember we talked about yield okay so a lot of stocks can go high yield dividends because their business

Model might actually be shrinking me their revenues are actually going down so their revenues are going down meanwhile their stock price also goes down and maybe they kept that dividend so their yield looks really high well a revenue trend that’s going down generally not a stock you want to be involved with unless you have some pretty strong certainty that that

Business model is gonna turn and they’re gonna get back to growth okay but a lot of times when these companies start going negative when it comes to revenues they continue to have their business shrink and shrink over time and many times the management teams cannot recover that business model okay so if you see revenue down trending generally speaking that’s not a

Positive sign from a dividend perspective because it’s the business of shrinking their stock price is probably gonna shrink which means their net income is probably going to shrink okay net income trend another very important thing even more important in the revenue trend net income means their bottom line like how much money is a company actually making or losing

In a given year or giving quarter overall okay this is the most important thing to probably look at when it comes to dividend stocks because you’re gonna be able to tell is the company becoming more and more profitable over time or less and less profitable over time look at the last five years for a company and tell me like where is it at and what the trend is

There okay if a company’s consistently having their net income going up and going up doesn’t mean it will absolutely go up in the future because it could go down what it means there’s a greater likelihood and on the flip side if i knit incomes going down and down and down it means it’s probably a trend there is probably continue to get worse okay net income is

So important because that’s actually the money that at the end of the day the companies usually pay out to shareholders in the form of dividends okay a portion of that net income is usually what’s paid out to these shareholders for dividends okay so this is even more important to look at the trend there then actually the revenue trend okay so now we’re starting

To look at some things we’re starting to get some context on what makes a great dividend stock we really want stocks that have revenues going up net incomes going up have track records of consistently paying out dividends and raising those dividends each year okay trailing 12-month pe versus forward pea also important to look at not just in determining whether

Stocks undervalued or overvalued but you want to see a company that generally has a higher trailing 12-month pe then forward p/e generally you want to find a company that is supposed to be more profitable in the next 12 months then in the previous 12 months those are the type of companies you really want to be involved with so you want to look at what the trailing

12-month p is what the 4p is is a ford p lower okay so an ideal situation for an average industry out there let’s say the the trailing 12-month pe on average for the s&p 500 let’s say 16 okay okay cool so let’s say this stock has a 16 ideally you want that forward p to be something like a 14 or 13 because that means the company is expected to actually get much

More profitable in this upcoming year versus this past year okay if you’re thinking about a dividend stock and making dividend money off of a stock you want a company that’s going to be more and more profitable in the future that’s a good thing for you because that means they’ll continue to probably pay out that dividend and they’ll probably continue to raise that

Dividend each and every year so very very important balance sheet balance sheet is way underrated when it comes to dividends so many dividend investors don’t even bother to look at the balance sheet okay this is so important this is so important this is a fundamental piece of all judgments on fundamental investing is the balance sheet and dividend investors a lot of

Them not all of them but a lot of dividend investors just disregard the balance sheet and i can promise you a balance sheet can get a company into so much trouble if a company is loaded up on debts okay they’re loaded up on debts and they don’t have a lot of cash and investments around then you’re looking at a company that’s probably gonna have to make mass interest

See also  First Trillion Dollar company

Payments on that debt over time if a company’s making mass interest payments on that debt over time then how much money do they actually have to pay out to you as a shareholder in the form of dividends probably not much right companies debt is continuing to climb and maybe their interest rates are even starting to climb right they’re paying out so much money all

To the banks and then there’s what’s going to be left over for you at the end of the day also a company with a bad balance sheet is gonna get itself into a lot of trouble in a recession scenario and probably have to cut their dividend completely so that stock you bought that had a three percent dividend yield or four percent dividend yield in a recession scenario

They might have to cut that completely so you get no dividend during a recession because if they don’t have much cash around and they’re paying out in order for the businesses to survive if they even have a positive net income they’re probably gonna need to use every dollar of that just to pay off debt because basically the bank’s probably won’t be loaning them

Money during a recession time so they stick themselves in a really bad scenario okay so if i’m thinking about the most underrated thing when it comes to dividend investing it is the balance sheet dividend investors love to just take for granted a balance sheet i can promise you always always look at the balance sheet because you will get hurt very bad if you’re

Not okay the yield most overrated thing balance sheet most underrated thing when it comes to dividend investing okay mixing up as a management team executive management team very key if you’re buying a company long term investing which generally if you’re a dividend investing you have a dividend portfolio you were generally like a long term investor or a value

Investor or something like that value investing long term investing and dividend investing they go together so they kind of kind of get worked together and that’s generally what people do okay so a management team if you’re investing this company for the next five years and you want to make more and more dividend money each year very very important that executive

Team knows what they’re doing is makes the right decisions so you need a judge a ceo what’s a ceo done since he got to that company has he made the right decisions the wrong decisions where’s where’s the stock price gone since he’s been at that company where’s the revenue trend on since he’s been at that company where’s the net income trended since he’s been at

That company all those things are very very important to look at that management team because a great management team they’re probably gonna grow that business over time they’re probably gonna protect that business over time and probably you’re probably gonna make a lot more dividend money in future years than you will have even in past years guys management team

Also another super underrated thing when it comes to dividend investing okay next thing you want to think about when you’re kind of thinking about is this a great dividend stock or not a great dividend stock is for the business model you want to think about the business model what products and services does this company sell okay and what is the opportunity for this

Business model over future years super super important okay if a business model is already maxed out if they already have pretty much as many customers as they can possibly get for their product or service or their market is shrinking things like that that’s bad okay that means that’s just a bad bad sign you want to buy into business model have huge opportunity and

Friend themselves that they can grow market share or they’re going into markets that are like brand new and there’s almost like infinity amounts they can grow into those type of business models in the future okay you want to look at that business model opportunity companies with huge business model opportunities are probably going to provide returns for investors

Over future years especially as long as you’re not buying them when they’re overvalued okay these are type of companies that not only can you probably get a lot of dividends share gains in the future but you’ll probably also get a lot of share price gains in those type of stocks as well because they’ll probably grow the business massively bigger in the future if

They have big opportunities and find themselves think about that business model what’s the opportunity there okay next thing i want to think about is what is the business model competition so in the products and services a company sells what’s their competition is are there any competitors and coming in their space that are such serious competitors that they could


Really actually damage that company in a massive massive way and put that company in a situation where they can’t grow their revenues they can’t grow their net income their business is shrinking their dividends are shrinking because the competition is too tough you’ve got to really think about how that business is doing foresee the competitors in their space okay

In the annual report the 10k of all companies they list out their competitors and why their competitors are a risk factor for the company very important to always look at those risk factors in a 10k by the way you can go to like investor relations page of any company out there so let’s say you were thinking about investing in i don’t know nike right it was type in

Nike investor relations go on their website click on their 10k or annual report and in that report they’re gonna have their competitors listed out there and what the competitive threats are so super super important because if the company has too much competition or too big of a competitor coming in their space that’s gonna eat their lunch then the business model

Is gonna go down the stock price is gonna go down so you’re probably gonna lose money in the stock and guess what else is gonna happen probably that yield will get cut or not be able to get raised in the future okay all very bad things so think about the business model competition alright in a last thing you also want to consider is payout ratio the l ratio is

Super super important for company okay so let’s say there’s a company that has a doll of eps okay one dollar of earnings per share and let’s say they pay out dividends each year of essentially seventy-five cents okay seventy-five cents they pay out in dividends this essentially means that this company has a seventy-five percent payout ratio okay which once again

Means that they are paying out seventy five percent of their earnings per share of their actually money at the end of the pi out to shareholders okay that number is a bit high personally i like to try to find payout ratios under fifty percent because this means the company is probably saving away a lot of money or using some of that money for share buybacks or

Using that money to go ahead and buy other companies or just storing that money on the balance sheet for a rainy day or pay off debt or something like that okay so what generally like to find companies that have payout ratios under fifty percent that means they have a lot of room to raise that dividend in future years even if the earnings per share were not to go

Out okay if you have a company with a really low payout ratio even if the earnings per share were flat they could still raise that dividend for years and years to come in the future because the payout ratio is so low companies that pay out over seventy five percent are generally companies that aren’t gonna raise the dividend much in the future at all if they even

Raise it at all in the future okay and so i see a lot of times people get attracted by yield and they’re like oh this stocks awesome it has a four percent dividend yield well that stock also has a 90 percent payout ratio and almost no revenue growth or net income growth and so you look at a business model like that it’s like okay it has a four percent yield but

You’re probably never going to get any raises in the future so if you hold that stock for five ten years you’re probably still gonna be getting that four percent dividend yield okay which might be fine for some people but meanwhile maybe there was another stock over here that had a three percent yield and only had you know a forty percent payout ratio and they

Were able to raise their dividend more and more over future years and so that three percent yield over time maybe goes to a five percent from where you bought the stock or maybe a six percent or something like that and also you’re blowing that four percent yield away guys so if you want to judge a great dividend stock for dividend investing you want to build out

A dividend portfolio or just add some dividend stocks to your portfolio think about some of these things i hope this video gave you guys a ton of value i think i try to give our way as much information for free on this video as i could possibly give guys so if you really enjoyed it make sure you smash the thumbs up button by the way if you want to know all my

Favorite stock market apps and websites i use go ahead and check out that pdf the link should be in the comments or in the description all right thank you for watching and have a great day

Transcribed from video
What Makes A Great Dividend Stock For Dividend Investing? By Financial Education

Scroll to top