- Dividend stocks are a must in balanced portfolios for long-term investors
- InvestingPro's "I dream of dividends" filter identifies dozens of promising dividend stocks.
- The "Dividend" tab available for each stock then allows you to choose the best ones
- Get access to InvestingPro at up to 55% off for BlackFriday!
- Dividend yield, i.e. the return on dividends in relation to the share price. Note that dividend yield and share price have an inverse relationship: if the share price rises, the dividend yield falls, and vice versa.
- The annualized payout amount corresponds to the total value of dividends over a year.
- The payout ratio shows the percentage of earnings paid out to shareholders in the form of dividends. This is key information for assessing a company's ability to increase dividends.
- Growth series, i.e. the number of consecutive years in which the dividend has been increased.
- Under this first widget, InvestingPro users can view a complete history of dividend payments, including the date, amount, and type of each payment.
When a company makes a profit, it can re-invest those funds to spark growth or pay dividends to its shareholders. Dividends are the portion of distributed profits that goes to shareholders, in proportion to the number of shares held.
Generally speaking, young, rapidly growing companies do not pay dividends, preferring to reinvest their profits to grow their business. More mature companies, however, can afford to do so.
So, to put it simply, investors have a choice between stocks that don't pay dividends, but have strong upside potential (while being riskier), and stocks that pay regular income, but have limited upside potential (with the advantage of lower risk).
To build a balanced portfolio, it is necessary to hold both types of stocks, which raises the need to identify the best dividend-paying stocks and to assess the sustainability of each candidate's payout.
And for this, the InvestingPro fundamental analysis platform is invaluable.
How to identify the best dividend stocks using InvestingPro?
First of all, the InvestingPro screener offers a pre-set filter called "I dream of dividends", based on dividend yield, return on invested capital, and PER ratio.
However, at the time of writing, this filter returns 189 potential results, so it's necessary to go further to separate the wheat from the chaff, which is possible thanks to the "Dividend" tab available for each stock covered by InvestingPro.
In this tab, you'll find all the information you need to assess the quality and security of each stock's dividends.
Source: InvestingPro
The first widget, located at the top left by default (the order of widgets is fully customizable), displays several key pieces of information:
Source: InvestingPro
At the top right of the tab is the date of the next dividend payment, and the expected amount.
Source: InvestingPro
Next, InvestingPro displays the historical data of the annual dividend, giving an idea of the long-term trend.
Source: InvestingPro
Finally, the last widget displays a graph showing the historical variation in dividend yield.
Conclusion
Having identified a number of dividend stocks worthy of consideration, InvestingPro's dividend tab is the ideal tool for determining which ones to buy. When choosing which stocks to buy, we'll obviously be looking at the dividend yield, but also the payout ratio, to determine whether the company has room to increase its payouts in the future, and the growth series, to find out whether the company is already in the habit of regularly increasing its dividends.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice or recommendation to invest as such and is in no way intended to encourage the purchase of assets. I would like to remind you that any asset class is evaluated from multiple points of view and is highly risky. Therefore, any investment decision and the associated risk remains with the investor.