top of page
Live Off Dividends

How to select top stocks for dividends for your portfolio? 🚀

Updated: Feb 16, 2023



In this article, I will explain to you how to begin and how to choose a dividend stock for your portfolio! I will use as an example my recent buy-again which is TROW as it become very attractive again. 🔥



First of all, what is a good dividend stock for you? It can be different for you and for me. Somebody is a little bit older and looking for better yielder companies, somebody like me wants some growth and decent dividend yield because I have time to retire, and some of us looking for only growth and a small amount of dividend yield.

In this case, TROW is right in the middle which I like. Very good growth potential and good dividend yield.


Let’s begin…🎬


Okay, first of all, we don’t know yet which stock we want to invest in. Let’s begin to download this „Dividend Radar” list. It will be updated every month and it contains everything that we need! 📝 https://www.portfolio-insight.com/dividend-radar?fbclid=IwAR1UIOG9_rbb1LBB1gnM13g9PuFcPLZ2GcfBy6PNECrjjkLQPGwzLaevt0s


Open up and go for the „Champions” list. These companies are paying and increasing their dividends for at least 25 years. Here we want to take a deep look. Champions are mostly safe companies and therefore it will be a safe investment for you.

You can just hide some columns to begin and to get a better overview. Hide FV, and from „Current DIV” to „52-week range – high” in all 8 columns. This information isn’t that important when you are investing for the long term. You will have a picture something like this:



The Trailing Total Returns are not important as well but the Fair Value can be handy.

Okay, we are here, what’s the next? If this is the first stock you want to buy in your life then it will be a little bit difficult to choose because you can begin everywhere, with every sector you can look for something or find something. In this case, I recommend picking one from this Blog from me or from another Author here. Otherwise, if this isn’t your first, look at your portfolio and see how diversified you are. Do you have 30% Financial stock in your portfolio but only 5% of Tech? Then look for a tech company to invest in. Diversify always well. 🗑️

For me it will be the Financial sector so I press Ctrl+F and here are some names that can be attractive: Aflac, Ben, Trow, Ubsi, Wabc I can overlook the others because of the low dividend yield. 💵


Real Research


We have the names, for me, it will be TROW this time, and let’s begin with what we can read out from this Excel Spreadsheet.


- How many years do they pay and increase their dividends? – 36years

- The price isn’t a piece of good information because it changes every day so ignore that.

- The div. yield is about to be correct but it changes itself with the current stock price.

- The 5-year average yield is a good indicator to see if the current dividend yield is much greater or worse than this number. In this case, this is a very good sign and you can think to yourself that the stock is at discount prices.

- DGR numbers? What are they? This is the percentage by how much they have increased their dividends recently, 3-year average, 5-year average, and 10-year average. Here you have to look for TWO things. The amount by how much they increased has to be around the same over the years. As you can see it is about the same or more by TROW so this is a checkmark for me. Secondly, the current increase(DGR1y) plus the current dividend yield is greater than 9%? Definitely yes!

- Fair value column: If there is either „At fair value” or „In the margin of safety” you are good to go! You don’t want to see here the text „Overvalued”.

After the Spreadsheet…📈


This was all of the important information that could give us this Spreadsheet. Let's open one of the most used research sites to look deeper into the stock: https://finance.yahoo.com/quote/TROW?p=TROW&.tsrc=fin-srch


- Next step is to take a look at the P/E ratio. As one of the greatest investors wrote in his book this Ratio has to be under 25. In TROW’s case, it is only 9.86 at the moment of writing.

- Next one is a little bit difficult, Share buybacks. Share buybacks can be a silent killer for your investment. If a company is issuing shares over and over again then your slice of the cake will be diluted. So we are looking for share buybacks and not the other way around. Go to the „Financials” lap on Yahoo Finance and look for these rows:



The first column is from 2021, the second from 2020, and so on… as you can see it is declining over the years so TROW makes also here a very good job and they diligently buy back shares every year. (All numbers are in thousands.)

- let's take a look at the dividend yield. Right now 3.94% which is a very good deal! TROW is considered to be a more growth stock than a dividend payer, this fact can be seen in the 5-year average yield. Only around 2.5% average yield which is great for a growth stock but low for a dividend stock, that’s why it is a great opportunity to buy into TROW.


Let's do some math…➕


We are staying on Yahoo Finance and under the „Financials” lap but here will be interesting. Go to „Show: Cash Flow” and at the right corner click „Expand all”. After that look for these two:



Those two metrics we will need to calculate the Payout ratio on the dividend! I compare this always to the Free cash flow. Most companies pay their dividends out from the Free Cash Flow. I want to make sure that they have enough from that and the paid dividends aren’t higher than the Free Cash Flows 75%.


If the paid dividends are higher than the Free Cash Flow than I consider the dividend unsafe and likely it will be cut in the next few years and then I can begin to worry when the company wants to maintain its dividends they will issue shares for this purpose or going into more debt. (I have already seen something like this.) 📉

So, the first column is the trailing number so we can use that.

1.728.800/3.325.500= 0.519 0.519*100= 51.9% the payout ratio


TROW is a beast! 🦁


As you can see TROW passed everything. You want to ask me maybe why not UBSI?


Well, for me UBSI fails after the Spreadsheet. 48 consecutive years is great but the yield isn’t greater than the 5-year average, and the overall DGR numbers are awful. I had to only go this deep into it and then I saw immediately why not.


Final words…🏁


I won’t lie, I have also paid subscriptions to research a stock so this isn’t everything that I’m using but this covers most of it. This is a very good beginner's guide or even a guide which you can use for years and years!

I hope this was a helpful article for you as Educational content for this month.

See you next month again with something juicy!


Kind Regards,


Adam

 

What to learn more about investing in the stock market? Buy now my new eBook that will make you a better investor!

Hope this was useful for you! If so, hit the like button to make me feel good. Please note that the above content is not investment advice and shall be considered only for informative purposes.


Feel free to share your opinions in the comments section below. Subscribe to get more unique content!


You might be also interested in:




0 comments

Comments


Stock Market Analysis

More Investing Articles

bottom of page