The Crucial Thing You're Missing About Many Dividend Stocks

When it comes down to brass tacks, dividend investors want both an attractive dividend yield and knowledge that the dividend will be paid year after year. Investors wouldn't be that interested in buying a stock with an 8% dividend yield if that company has to cut the dividend soon after, or potentially ends up in bankruptcy. And so, most people use the earnings payout ratio (the percentage of earnings paid out in dividends) to vet whether the stock has the ability to keep paying that dividend.

Motley Fool contributor Todd Campbell tells you why this widely-used ratio isn't actually your best bet -- there's a better option that can better identify whether many stocks are able to keep paying their dividends. Check out the video below to find out about this crucial metric and why it makes better sense for many dividend stocks. The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby.

Source: Motley Fool

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