Picking the right dividend stocks is subtle though, and requires, ironically, a fixed-income mind-set. That’s because finding stocks that pay consistent cash dividends is very much like picking bonds that will continue to pay their coupon, and such skills are not usually in an equity analyst’s wheelhouse. While equity analysts may judge a company’s willingness to pay, a bond analyst looks at a company’s ability to pay.

When looking for a few good dividend payers, I look for companies that have the predictable revenues and simple business plans. Companies cannot pay out dividends unless they have solid cash flows, and solid cash flows come from strong dependable revenues. If I can understand how the company makes money and the future revenues are easy to model, then I have a sense of the cash flows that would support the dividend payout.

Source: Forbes

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