Picking a dividend stock does not equate to simply identifying the stocks with the highest dividend yields and making an investment. High dividends often equate to high risk because the cause and whether it can be sustained is unknown. The investor should consider the dividend payment amongst other factors when adding a dividend stock to the portfolio.
First, identify the stocks that pay dividends by a using free stock screener such as the one offered by MSN Money or a similar tool available through an online brokerage account. Input key variables like dividend yield percentage, price/earnings ratio figure, earnings per share growth rate, and debt to equity ratio. Hit calculate and the system will generate a list of dividend stocks that meet the criteria.
Review these results, being wary of companies with dividends over seven percent. Further research of these is recommended to find out why the dividend is so high. Review the other stocks on the list and determine whether diversification or saturation within an industry sector is the goal. Pick the desired stocks based on this decision and then study the earnings projections and balance sheets of these companies.
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