Here's How to Choose Winning Dividend Stocks

The low, low interest rates of the past several years have placed a premium and emphasis on dividend paying stocks. While this is sound thinking, it’s incomplete. For all but the most unique circumstances, investors want to focus on dividend paying stocks with a track record of consistently increasing their dividend.

Dividend payout ratio [is] an important variable in assessing whether or not a company can continue to increase dividend payments to shareholders. The payout ratio is defined as Dividend Per Share ÷ Earnings Per Share. The higher the ratio, the less room a company has to keep the dividend constant or increasing in lean years, simply by increasing the percent of net income that is allocated to shareholders. The payout ratio is not a silver bullet for assessing dividend-paying ability. For instance, companies with high amounts of depreciation will present a distorted picture, as cash flow per share is likely to be higher than earnings per share.

Source: Minyanville

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