5 Essential Signs of the Best Dividend Stocks

The best dividend stocks are great businesses, but not all great businesses are great dividend stocks. To be considered among the latter, companies need to jump a number of dividend-related hurdles -- five to be exact. 1. A verbal commitment: You care about dividends, so it makes sense the company should, too. Take this quote from Realty Income's (NYSE:O) CEO John Case in his 2014 letter to shareholders: "Our mission, as always, is to manage our real estate assets so that they continue to generate the lease revenue to support growing monthly dividend payments." 2. Proven dividend track record: But talk can be cheap. You are also going to want proof that the company is following through on its verbal commitment. Aflac and Realty Income have increased their dividend every year for at least the last two decades.

3. Model for consistency: Long dividend track records are often made possible because certain companies can generate predictable income -- and that is exactly what you want. 4. Higher than average yield" Beyond the nuts and bolts of the business, you're also going to want some bang for your buck. 5. Growth of income: The real money is made through dividends plus stock appreciation -- and dividend growth is an important factor in that formula. This is because a company's stock price follows the growth of income. It may not happen in lock step, but companies that grow dividends eventually see their stock price follow. Long track records and high yields are icing on the cake. It not as delicious without it, but it all begins with a solid foundation. Start with a wonderful business, decide if it has the five additional qualities, and you will be spotting top-notch dividend stocks like Realty Income and Aflac in no time.

Source: Motley Fool

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