How to Find the Right Dividend Growth Stock

By Alan Olsen
How to Find the Right Dividend Growth Stock

Have you looked at dividend growth stocks lately? Do you have any your portfolio now? Maybe you’re missing out on some legitimate opportunities for increased wealth. Dividend growth investing is a strategy that investors use as a long-term option to increase their returns. When you focus on dividend growth stocks you invest in companies that raise their dividends on a regular basis. In case you’re not clear on what a dividend is it’s a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits. The company’s board of directors determines this sum and payments can be made as cash or other property or even as additional stock shares.

Who’s Handing Out Dividends?

Again, this is a long-term strategy as itfocuses on dividend growth over a period of typically 10 years or more. Although most dividend growth stocks won’t bring a big return immediately, they can create a large return based on cost. In most cases, high-growth companies and startups do not offer dividends, because they tend to put that money back into their company. On the other hand, established companies that don’t typically experience rapid growth tend to hand out dividends much more regularly in an attempt to maximize their shareholders’ wealth.

Which Stocks Fit the Bill?

The key to successful dividend growth stock investing is finding the right stocks. There are some key factors to keep in mind when you are choosing dividend growth stocks. After all, just like investing in any other stock, you want to get the best return on your investment.

A Strong Defense-first off, search for companies that have some kind of economic advantage over their competition. In other words,it should havethe ability to prevent its competitors from stealing its business or market share. These kinds of stocks ensure business stability and at the same time they provide these companies the ability to hand out more cash dividends. These stocks don’t guarantee dividend growth but most of the time they do.

The Payout Ratio Matters–you must pay close attention to a company’s payout ratio. It’s a telltale sign of future payouts.Not only do you want a company that pays out a nice percentage, but also one that can sustain continual growth in their dividend payouts. After all, if a company can’t sustain it’s recent payout history then it isn’t a good dividend growth stock candidate for your portfolio.

Growth History–it’s always critical to live in the present while you do your best to forecast for the future, when it comes to investing. However, when investing in dividend growth stocks you have to also consider the past. That does not mean you have to go back 20 years to track the company’s history of paying dividends. You should, however, take a close look at the stock’s recent history. Examinethe last five years, for example, and if the company has a history of continual dividend growth combined with available cash, then chances are they will continue that upward trend.