Don't Just Pick Any Dividend

Dividend income is distributed to shareholders in the form of cash. Now, not all listed companies pay dividends. Most of the dividend-paying companies are profitable or have long history of profitability. This is important because in the long run, I think the profit will dictate stock price movement. Therefore, choosing a good dividend paying stocks will pay off in the long run.

What is the criteria that you should look for in dividend paying stocks? Basically we want our companies to maintain its dividend for a long time or increase. The following guidelines will help you paying stocks. Identify the good dividend

Long history of profitability. I prefer companies that have at least 3 years of profitable years before dividends. Business tends to fluctuate and I want to make sure that the company is solid profitable before they start dividend payments.

Average payout ratio of less than 75%. Payout ratio is the ratio of dividend versus net profit. For example, Bank of America (BAC) gives out $ 2.00 per share of the dividend, while earn $ 4.15 per share. This brings its payout ratio to 48%. Payout ratio of less than 75% ensures continuous dividend, even when things are less than stellar. Moreover, even enough money for his company to expand as needed the company.

Predicted Earning growth of 0%. That's right. Earning must remain constant at least. If earn pours, the dividend will eventually be cut. No, we do not demand profits grow by X amount. We just have to be constant. If you calculate that a stock is undervalued already earning growth of 0%, it will deeply undervalued when their earning is growing. When earning grows, will follow dividend.

Net cash of at least $ 0. What I meant here is the amount of the net cash available to the company's balance sheet. Net cash is calculated as cash and cash equivalents with long-term debt. For long-term debt exceeds cash, the value of the net cash negative. We prefer companies that have a positive net cash. In this way, even if the business falters, it is still enough money for his company to work or perhaps continue the dividend.

Clean Bill of Health. This is important. Some companies meet all the above criteria, but its accounting is being investigated by the SEC. What good does it do? So make sure that the company in question has a clean book and SEC is not to investigate. Accounting practices