How to Find the Best Dividend-Paying Stocks for You

You want to find good companies that will be around a long time and are not ridiculously overvalued. You will want your list of stocks to contain those stocks that are not already the favorites of Wall Street.

Using stock screeners and research services you want to build a list of stocks that have good dividend yield of 3% or more at the current price.

You also want companies that have a history of growing the dividend and are likely to increase the dividend at a reasonable rate in the future.

In fact, Money Morning Global Investing Strategist Martin Hutchinson said a company’s track record is the key factor in finding a solid dividend-paying stock.

“Specifically, you’re looking for companies that have a decades-long record of increasing dividends and providing value to investors,” said Hutchinson. “These are stocks that can generate profits like clockwork-even in down markets.”

To decrease your exposure to companies that could cut their dividend, limit your candidate list to stocks that pay out less than 60% of net profits as dividends.

Finally you want to avoid the herd so cut any stock that has more than 70% of its shares owned by large institutional investors.

The resulting list of stocks gives you candidates than can reward you with strong dividend payments that should rise in the future. Many of the stocks also have the potential for strong appreciation over the next several years.

One for the Road
An example of a dividend-paying stock meeting this criteria is SJW Corp. (NYSE: SJW).

The company is in the business of production, storage and distribution of water in California as well as parts of Texas. This is an area many believe will be a growth industry over the next decade as water supplies are pressured and prices rise.

The stock yields 3% at today’s price and the company has a solid history of raising the payout. You can be ahead of the crowd with this stock as less than 50% of the shares are owned by the large institutions.

Also, just like when grocery shopping, keep your eyes peeled for deals on dividend stocks.

At least once a year we get a period where stock prices decline by at least 10% to15%. Different sectors of the market will decline during the course of the year and offer attractive entry points.

Putting together a portfolio of dividend-paying stocks requires patience, and thinking differently than the herd mentality exhibited by most investors, but it’s worth it as you can create a portfolio that grows your wealth over time.

Money Morning’s Martin Hutchinson has spent decades perfecting his system for finding the best dividend-paying stocks. Click here to learn more about his method.

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