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How To Pick Great Dividend Stocks | Dividend Investing for Beginners

JJ Buckner

Tue. Jun. 15, 2021 4:29pm

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10 things you can look for when investing in dividend stocks. In this video I will be giving my step by step guide of what you need to look for when investing in dividend stocks. This can be used as a tutorial on dividend investing for beginners out there for years to come... not just 2021! We will be looking at different metrics as you can see below:

1. Dividend Payout Ratio: shows the percentage of a companies earnings paid out as dividends to shareholders.
a. Annual dividends per share/EPS*100 or Total Dividends/Net Income
b. You like to see 60% or under

2. Revenue Growth over the past 5 years

3. Consistent Dividend Growth (3% to 4% per year)
a. To keep up with inflation

4. Free Cash Flow: Cash from Operations – Capital Expenditures
a. Cash from operations is the money that they make from operating their core business.
b. Businesses can also make money from investing and financing but cash from operations is the money that is actually made from the business earning dollars
c. Capital expenditures is the capital they invest back into their fixed assets. Buildings, equipment, etc
d. Free Cash Flow is used to pay dividends, growing the company, buying shares back and Acquisitions
e. If the company is not generating free cash flow, well then they wont be able to pay you dividends

5. Profit Margin greater than 10% - which is Net Income/Revenue
a. Basically tells you how well the company is making money

6. PE
a. Price of stock/Earnings per share
b. Price = just the price of the stock
c. EPS = net income/# of common shares outstanding

7. Current Ratio: Total Current Assets/Total Current Liabilities (1.0 or better is what you are looking for)

8. Net Debt to Capital (Takes it a next step further)
a. Tells us the capital structure of the company and financial health.
b. If a company falls on some hard times and it has too much debt and cash flow is getting smaller, price can get hammered and dividend becomes much riskier.
c. Companies will always pay debts before dividends!
d. Net Debt = (Short Term Liabilities + Long Term Liabilities) – (Cash + Cash Equivalents + Current Assets)
e. Net Debt to Capital = (Net Debt/(Net Debt + Shareholder’s Equity))*100
f. Generally like to see 50% or less although some businesses such as utilities can reasonably take on higher debt levels due to the reliability of their earnings.

9. Net Debt/EBITDA
a. Net Debt = SEE ABOVE
b. EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization, measures overall companies financial performance
c. higher level of debt
d. No greater than 3

10. Number of Shares Outstanding (decreasing or staying the same)

Introduction 0:00
Misconceptions of Dividend Investing 0:46
New Dividend Tracker Coming Soon 3:02
Understanding the Business 4:14
The Dividend 10 5:12
1. Dividend Payout Ratio 5:18
2. Revenue Growth 8:16
3. Consistent Dividend Growth 9:15
4. Free Cash Flow 10:40
5. Profit Margin 13:56
6. PE Ratio 15:37
7. Current Ratio 18:14
8. Net Debt to Capital 21:23
9. Net Debt/EBITDA 26:59
10. Number of Shares Outstanding 29:06
Final Thoughts 30:57


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#dividends #dividendstocks #stockmarket