Last Saturday’s Digest was about When to Sell a Dividend Stock. In that issue, I shared the warning signs legendary investor Louis Navellier looks for, and his rationale for selling a dividend stock.
Today’s Digest is going to discuss how to pick dividend stock winners, and I’m going to share some details about our free tool and 10 great picks to invest in today.
We’re spending a lot of time talking about dividend stocks lately. As the market has become more volatile, search volume for the term “dividend stocks” has risen substantially on InvestorPlace.com.
Yesterday’s lackluster jobs report didn’t instill a ton of confidence in the 2019 rally.
Investors seem to be seeking out more safe places to put their money, and there are certainly lots of choices.
But picking the best dividend stocks isn’t as easy as it might seem.
Investors must consider yield, payout ratio, and dividend growth. But even after all that, there is still more to consider.
Plus, there are some hidden traps.
For example, some companies have larger-than-normal dividend yields, sometimes in the 10% – 15% range. That seems like an easy choice for investors who are chasing dividend yield.
But often a company claiming an extremely high dividend yield will find it difficult to sustain. If the company cuts the dividend payment, the share price will fall. There are exceptions, but this is generally the case. So, simply making the decision based on yield is a mistake.
Staying with safe dividend payers allows you to avoid this trap, but that doesn’t mean your evaluation is done.
Is the dividend trending in the right direction? Maybe the payout has been reliable over years, but what does the future payout reliability look like?
There are lots of dividend stock choices, and finding the best requires considering a lot of numbers and weighing all the businesses underlying fundamentals.
We have a tool to help with all that.
You can use this free tool to enter a ticker and immediately get a buy, hold or sell recommendation. Like the Navellier Portfolio Grader, the Dividend Grader considers a stock’s fundamentals and buying pressure (i.e., does the stock have buy momentum).
But it also considers factors such as dividend history and cash flow – both much more important for dividend stocks.
The tool consolidates all the factors and leaves you with an easy-to-understand grade on an A through F scale. An “A” grade means the stock is a strong buy. An “F” grade means the stock is a strong sell. Grades B, C and D provide the shades of gray in between.
The tool is updated every Monday, so you know the grades are based on the latest information available.
This free tool is proving especially handy right now as investors are seeking yield. In a recent post to his subscriber, Louis explained to Growth Investor subscribers why he thinks dividend stocks are an especially good investment right now.
It’s been a great year for dividend growth stocks since the Federal Reserve hit the brakes on raising key interest rates. The dividend yield on the S&P 500 is over 2%, so there’s much more money to be made here than Treasury bonds. Remember, most dividends are tax-advantaged and taxed at a maximum federal rate of 23.8%. So, the S&P 500 actually yields more than a 10-year Treasury bond that is taxed at a maximum federal rate of 40.8%.
As such, yield-hungry investors will continue to pour into dividend stocks. There are two other great reasons why folks focus on dividends. One, a generous dividend payment often lowers a stock’s volatility. And two, dividends reveal how much money a company really has. If the company is willing to part with cash in the form of a dividend payment, then its balance sheet must be strong.
But investors should remember that Louis doesn’t like all dividend stocks. Last week, I specifically highlighted a dividend stock Louis was selling. Well, this week he sold another one from his Growth Investor portfolio for substantially the same reason: deteriorating dividend reliability.
In the Dividend Grader both stocks received a D-rating. In some cases, stocks receive a D rating due to risks to the dividend. In other cases, it’s because buying pressure is drying up – investors are headed elsewhere. That’s why it is so vital to look at the whole picture for each stock.
We created the Dividend Grader because we want to help you invest in the best. Click here to give it a try using some of your favorite tickers, or maybe something from your watch list you’d love to buy on a dip.
If you need help to get started, Louis shared 10 A-rated dividend stocks that could boost your portfolio returns. Take a look at the list below and good investing!
To a richer life…
Luis Hernandez, Managing Editor
and the research team at InvestorPlace.com