Dividends4Life: How To Find The Best High Dividend Stocks For Your Portfolio

When choosing a stock for its dividend yield you are going to want to look at the historical performance of that stock’s dividend payouts. The dividend yield of a stock will typically move back to its long term average, so if you have a stock with a 6% yield now but a historical average of 4% you can expect the dividend yield to drop over time. Conversely a stock with a 2.5% yield now but a historical average of 5% will likely see an increase in the dividend yield over time. Therefore looking at two stocks at a single point in time, one with a 6% current yield and the other with a 2.5% current yield may not be representative of what you can expect over time.

In addition to looking at historical trends, when assessing a company’s ability to pay dividends over time it is important to look at their Free Cash Flow. This is a financial metric that shows you how much cash the company has to pay out dividends and invest in itself without seeking financing for growth. If over several years Free Cash Flow has shown a positive trend you can expect the company to be able to continue to pay dividends. If Free Cash Flow has been negative then the company will increasingly be devoting cash to paying off financing, straining its ability to sustain dividend payments.

Source: Investor Guide

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