5 Characteristics of the Best Dividend Paying Stocks

As an active dividend investor, I am aware of the large number of high yielding stocks to choose from. There are some high dividend paying stocks that are very risky investments. On the other hand, there are plenty of strong dividend stocks that are from well managed companies with healthy balance sheets.

So how does an investor identify the best dividend paying stocks? Finding these top stocks requires a little patience and investigation of several factors. It is not a simple task investing in dividend stocks. Instead, it takes some time and effort to be a successful trader.

To help get you started, check out the following characteristics that can help you find the best dividend paying stocks.

Characteristics of the Best Dividend Paying Stocks

1. Strong History – The best dividend paying stocks are always the ones with a strong history. Look back at the past 25 years of a stock’s fundamental and dividend performance. Do they have a strong history of raising their distributions every year? If so, then they are more than likely a company you will want to pay attention to moving forward.
2. Low P/E – The best dividend paying stocks should have a price per earnings ratio that is less than or equal to 20. This number may vary depending on a particular sector or industry. It is also important to look at the company’s future P/E ratio projection as a sign of what is in store for the future.
3. No Dividend Cuts – Companies that have cut a dividend distribution in the past may not be the safest investment. Having a reputation of few dividend cuts is a good sign of a stable company. Maintaining and periodically increasing dividends is a sign of strong management which is always important.
4. Modest Dividend Yield – Create a list of dividend paying stocks with a yield between 2% to 6%. You can adjust your dividend stock screen based on your preferences, but many experts try to stick between this range. Anything less than 2% may not be worth the investment, while anything over 6% is probably going to lead to a questionable investment. The best dividend paying stocks usually will fall somewhere in this range.
5. Earnings Growth – When it comes to finding the best dividend paying stocks, strong earnings growth is critical. Stocks that are the dividend leaders should have a projected earnings growth greater than 10% for the next 5 years. This number can be adjusted to meet your needs but is a good point of reference to start your search.

Picking the Best Dividend Paying Stocks

There are plenty of strategies to becoming a successful dividend investor. The one common theme found across all long standing investors is owning the best dividend paying stocks possible. While the definition may vary between investors and experts, the 5 characteristics identified above are found in each and every investment!

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