Finding Safe Dividend Stocks

Not all stocks that pay out dividends are created equal. Here's how to evaluate them for growth and reliability.
Hunting for yield but fearful of getting burned? Here are four key questions that will help you "stress-test" a prospective dividend payer. 1) What is the stock's current yield? To get that figure, divide the current annualized dividend by the stock price. Typically, the higher the yield, the greater the likelihood that a company won’t raise its dividend much or, worse, could cut or eliminate it.

2) What is the stock's dividend payout ratio? This ratio is calculated by dividing the annualized dividend rate by a company's annual earnings per share. In general, the lower the payout ratio, the more room a company has to raise its dividend. 3) What is the recent history of dividend changes? Plenty of companies pay lip service to being generous with dividends. But actions speak louder than words. 4) Are new threats emerging that could dim a company's profit and dividend growth? The 2008 financial crash was a "black swan" – a development that few people foresaw. But many threats to companies' fortunes develop more gradually.

Source: Kiplinger

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