Many of the investors that make their investment for fulfilling their long term goal and they find that stock or the companies that will be able to generate them profits for their investments.
Many investors want to chase growth in the bull markets and the stable dividend paying firms attract them the most when there is downside in the market.
It is difficult to find that company which pays decent dividend in the bear market also.
For finding the ideal dividend paying stock, here are some guidelines which will help the investors to find out the correct dividend stock in the distress case also.
#1 First is to Assess the company’s Financial Health
You may be thinking that assessing the company’s financial health may take a lot of time.
But the thing is that the investors are dependent on the dividend stocks for the long term growth perspective and since the dividend reinvestment plans (DRIP), dollar-cost averaging and compound returns can be helpful in significantly boosting the overall gains.
Therefore, for this reason the investors need to check the companies with long histories, wide moats and consistent growth in profits and free cash flow (FCF).
#2 You also need to check the Company’s Dividend History
When the company is consistently rising its dividend then it indicates that it is consistently growing with its FCF and the earnings.
And it is interested in rewarding the long-term shareholders.
#3 Look at the Company’s payout ratio’s
A company’s ability to consistently paying the dividend can be analyzed by looking at the dividend payout ratio.
The ratio can be calculated in two ways: either as a percentage of its earnings per share or as a percentage of its FCF. B
ut in later, it is more preferred to be reliable at company’s EPS as it excluded the buybacks.