Investing in best dividend stocks and ensuring a steady dividend yield

Posted by alisonreid29 on March 5th, 2015

Investors, all over the world, search for the best dividend stocks, because, it helps them earn a steady income in the form of regular dividend yield. But the bone of contention is how do you know which stock is the best to invest in. There are a few ways to come into that conclusion. One of them is definitely to observe which sectors are set for a growth path in a particular year and deciding to either invest in them or in the basic materials that are required in those sectors. Due to the volatility of the stock market, it is a bit difficult to assume that a company will continue to give returns on investment and not plan for cuts on dividend due to cash crunches. 

The portfolio of stocks that you decide to invest in, needs to be diversified so that the chances of profitability increases and you can expect a fair dividend yield at a regular interval. Narrowing down on the probable stocks may be a good way to decide the portfolio. You can trust the Dow Jones Industrial Average (DJIA) stock listings as that is considered to be the stock market benchmark. The online stock screener, dividend achievers and dividend aristocrats should be able to give you a more focused view of the best dividend stocks to invest in.

The next step is to investigate each company’s financial position online, especially the financial statements of the past decade. If a company is able to generate dividend earnings for its stockholders consistently for 10 years, there are higher chances of it being able to do so in the future as well. Study the key measurements of financial strength of the companies that you have shortlisted as the best dividend stocks. These indicators will include a low debt to equity ratio, a current ratio which is more than 2, high interest coverage and no preferred stocks. If you are looking at a dividend yield which is stable and gives you assured earnings then you also need to check if the stock has a high return on equity, high dividend growth and an increasing earnings-per-share and sales.

The above are few of the ways to decide on the best dividend stocks that you can bet your money on. In addition to this, there is one more way in which you can increase your dividend yield. It is compounded dividend earnings. This implies that you need to reinvest your dividends in the company instead of taking the quarterly or annual dividend check. But keep this in mind that compounding takes time. Your money will grow but time is essential for that. And, you need to start your Dividend Reinvestment Plan or DRIP. It can be managed by either the company or a brokerage firm. How do you invest your dividends again? Simple – by purchasing additional shares with the dividends that you earn.

As and when you have been able to decide on the best dividend stocks that you want to invest in, you can concentrate on getting the best returns. DRIP shares are advantageous from the perspective of the investors as well as the company. The investor can buy the shares sans commission or even at a discounted price. From the standpoint of the company, the shares will be directly sold by the company and the earnings from the sale of stocks will remain within the company thereby avoiding outflow of cash required for dividend yield payouts.

Know more about how to invest in the best dividend stocks and ensure a steady dividend yield.