Quickly Identifying High Dividend Stocks

The hardest part about investing is identifying good quality stocks to buy. However there is an easy way to generate a list of high dividend stocks that you can do further analysis on. It is through the use of the High Dividend Achievers and the High Dividend Aristocrats lists.

Each of these lists presents stocks that have one thing in common; they have a long history of increasing their dividend payments to investors. This is the most powerful concept when considering high dividend stocks.

The difference between the two lists is the number of years a company must have consistently increased its dividend. For the Achievers there must have been 10 years of increases. For the Aristocrats that period of time is 25 years.

Both of these lists are great starting points to develop your list of high dividend stocks. For more info on each list click here or here.

Weak Market Creates Opportunites for High Dividend Stocks Investors

The most recent market slow down has created opportunities for investors, especially those that are interested in high dividend stocks. For investors that search for stocks with higher dividend yields, a down market creates buying opportunities as dividend yields head up as prices go down.

A recent article from SFGate.com presents this viewpoint on this very topic:

The recent market downturn has created buying opportunities for astute investors, especially for dividend stock buyers. Here's why.

The dividend yield for a stock is the return you would achieve over the next 12 months, assuming that both the dividend payout and the share price remain constant for the year.

It's calculated by dividing the expected next 12 months' dividends by the share price. For example, the yield would be 5 percent for a stock currently trading at $100 per share that is expected to pay $5 in dividends the next year ($5 divided by $100). So the dividend yield to new buyers goes up when share prices drop.

Thanks to the weak market, yields on dividend payers with strong fundamental outlooks are higher than they've been for some time.

If you have a watch list of high dividend stocks that you monitor, then the recent market action has provided you with a great opportunity to dip your toes into some shares of those companies. Keep in mind however, we probably have not seen the last of these crazy markets so act slowly and cautiously and think long-term results!

Be Sure to Research Your High Dividend Stocks Before Buying Them

Based on an article published by the Canadian Securities Institute, there is an alarming number of investors who do not do research before buying investments such as high dividend stocks or mutual funds. The article states that 49% of investors did not research their most recent investment, instead relying on the sole advice of their investment adviser. For this reason alone, I still want to encourage investors to read The Single Best Investment: Creating Wealth with Dividend Growth. It is a must own for investors looking to invest in high dividend stocks and ensure their investment brokers are giving them good advice.

Here are a couple of key points from the article:

• Investors understand the importance of investing and the value of investor education. The majority of the respondents (72%) are saving or investing for their future.
• More than half of the respondents understood the importance of key concepts like diversification (64%) when making financial decisions.
• However, most (88%) believe a financial plan is important, but over half (58%) don’t have one.
• Most respondents (92%) agreed on the importance of conducting independent research before investing. However, 49% did not personally research their most recent investment, and 22% invested immediately after hearing about an investment opportunity. Among the 44% of those who didn’t personally research their most recent investment, 72% bought the investment solely on the advice of their financial adviser

To invest successfully, even if you use a broker, you must ensure you understand on some level what your broker is buying for you. A thorough education on investing concepts is important. When it comes to high dividend investing, the best resource is The Single Best Investment: Creating Wealth with Dividend Growth. This book provides a methodical and realistic approach to investment decisions to help you understand what it is you are buying.

The Most Important Resource for Your High Dividend Stocks Library

If there is only one book you should buy in your education on high dividend stocks, then The Single Best Investment: Creating Wealth with Dividend Growth should be it. The key concept in this book is its focus on dividend growth as qualification for stock selection - the higher dividend growth you see year after year, the better.

Dividend growth is when a company raises its dividend it pays to investors holding shares in the company. The concept behind the book is that when searching for stocks, one should be looking for the companies that tend it raise the dividends paid to investors on an annual basis. The impact this has on a portfolio is massive.

For example, lets say you own 100 shares of Coca-Cola and today the dividend per share that the company pays you is $1.36 per share. Each year you would receive $136 in dividends from this high dividend stock. Now Coke has a real habit of raising its dividends every year so lets pretend its 2010 and Coke's annual dividend is $1.57 per share (the dividend was increased 5% each year). Now your 100 shares will be providing you with $157 per year in dividend income. You didn't need to do anything for it, just ensure that Coke still met your investing criteria.

The Single Best Investment: Creating Wealth with Dividend Growth will teach you how to use this powerful concept to increase your portfolio's income on a yearly basis. I highly recommend it as the first, second, third....book in your high dividend stock library.

Can a Yield Be Too High on High Dividend Stocks?

If you use some of the more popular stock screening software packages in your search for high dividend stocks, you may come across some companies that have yields that are very high. These companies need to be scrutinized very closely.

The question that comes to most people's minds is, when is a dividend yield too high? I would suggest that a dividend yield that is higher than 5% requires special attention. One important thing to note is that I am speaking about high dividend stocks from regular companies such as Bank of America and not things like REITs.

So what if your high dividend stocks have a yield above 6%? You need to look closely at things like what the historical yield has been and if the dividend payed has gone up (or down). You also need to confirm that the payout ratio is fine and has not increased drastically in the past few years. If any of these seem out of whack, then beware!

So what are your next steps? Go and find a good stock screener like the one at Microsoft Moneycentral and start digging for high dividend stocks. Then do some research on a company you know to ensure it is a strong one with a healthy dividend and not just a high one.

Update: If you are new to investing in high dividend stocks, or want to have access to a proven stock selection methodology, then please check out Online Trading for Financial Freedom

How to Invest in High Dividend Stocks

Investing has been a passion of mine and my particular investment philosophy centers around identifying high dividend stocks and adding them to my portfolio. I am constantly on the lookout for tools and techniques that can help me grow my portfolio so that the income it generates will be enough for me to retire on in 5 years.

Many of my friends and family have asked me repeatedly to post my tips and techniques on how to invest in high dividend stocks. This website is a culmination of the tips and techniques that I have put together over the years.