Ways to Spot the Best Dividend Stocks

Concerns about higher interest rates have weighed on even the best dividend paying stocks this summer. That’s partly because rising rates increase the appeal of less risky investments like U.S. Treasury bills, notes and bonds, which draws investor attention away from dividend-paying companies. However, dividends continue to be hugely important for investors over the long term, as illustrated by a recent report from Guinness Atkinson Funds. “For an average holding period of one year, dividends accounted for 27% of total returns for the S&P 500 since 1940,” says the report. “If we increase the holding period to three years, dividends account for 38%, five years it increases to 42%, over a 10-year period it rises to 48%, and with a 20-year holding period dividends account for some 60% of total returns.”

Here are four more things to keep in mind when looking for the best dividend stocks to add to your portfolio: 1.) Take the long view - if you’re investing for income, your focus should always be on the health of the underlying business. 2.) Focus on revenue reliability - Have the stock’s revenue and dividends held up well during past downturns, such as the 2008 financial crisis? 3.) Don’t overlook debt - You’ll want to look for companies with healthy balance sheets, including significant cash holdings and low debt. 4.) Keep it simple - Peter Lynch said it best in his 1994 book Beating the Street: “Never invest in anything that you can’t illustrate with a crayon.”

Source: Investing Daily

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