Selecting Your Dividend-Paying Stocks

Look for dividend-paying stocks that grow over time.
Look for dividend-paying stocks whose dividends and price grow over time. If a dividend-paying stock isn't giving you an increase of at least five percent each year, your dividends probably aren't keeping up with inflation. You also want a stock whose price increases over time, demonstrating company growth and demand.

Seek out the dividend-paying stocks that perform.
Look for dividend-paying stocks that perform well over time. If you want to be truly secure, choose only dividend-paying stocks that have been around for several years and whose performance you can gauge. If you're willing to take a little risk, you can try measuring initial public offerings based on performance to date, but understand that new offerings may be volatile and not necessarily a good indicator of long-term performance.

Don't be a yield chaser.
Yes, yield is important. However, weigh the yield compared with the long-term performance of the stock. If the yield is 20 percent but the stock fluctuates wildly, it's probably a risky investment. Additionally, yield is high when the dividend-paying stocks have low volume; when investors see the high yield, they buy up stock and the yield decreases. Therefore, if you're looking solely at the stock's yield, you might not end up with a top dividend paying stock; you might just have the next hottest stock, which won't necessarily yield much of anything in the long run.

Evaluate debt load.
Dividend-paying stocks are often forced to decrease their dividends if they have a large debt burden and become cash-strapped. Look for a company with a low debt load, so you can feel comfortable with the longevity of the dividend-paying stock. Debt load might not matter in a bull market, as there are typically plenty of investors to go around and enough cash to keep even a high-debt company solvent, but when you're faced with a bear market, you want dividend-paying stocks in a company with enough cash to see them through the market downswing.

Analyze earnings forecasts.
The top dividend-paying stocks raise dividends every year. There are two ways to determine whether a dividend-paying stock is likely to yield dividend increases: examine its history, and analyze its earnings forecasts. You want to buy dividend-paying stocks in companies whose earnings are growing. Earnings growth equals dividend increases. If the company is entering a lengthy research phase where earnings are likely to slow, you might want to wait until earnings are projected to grow again.

Don't be afraid to consult professionals.
While everyone can research stock history, company financials, volume and dividend-yield, analyzing an entire market or even a large market segment is time-consuming. Don't be afraid to consult professionals to help you select top dividend-paying stocks. If you do a lot of investing, it may be in your best interest to hire an investment firm to help you manage your portfolio. You'll save a lot of time, and you can choose how closely you want to manage your dividend-paying stocks.