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Characteristics of Good Dividend Stocks

The best Dividend Stocks have easy to understand characteristics. The characteristics help you analyze the quantitative aspects of the company you choose to invest. Most important is the numbers are consistent and improving each year. If the numbers are consistent without increases over the years, it is still a good company. Even if there was one to two down years over 5 to 10 years period, this company is still worth investing for dividends which will help you create your financial freedom. Now that you understand that consistency is the most important issue, let us consider the various characteristics. 1. Dividend Yield - a financial ratio that shows how much a company pays out in dividends each year relative to its share price (the price you buy the share). In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as Annual Dividend divided by Share Price you paid. For example, if you bought the share a $10 and and the annual dividend payment is $0.50, then the dividend yield is 5%. There are two different dividend yields to consider. First is by using the trailing 12 months dividends. You take the last twelve dividend divided by you purchase price per share to get the yield. Second is by using the expected dividends for the upcoming 12 months dividing that number by your purchase price to get the yield. You should know your preferred yield before you start you research. The higher the dividend yields the better. This will help get more passive income from dividends to achieve your financial freedom. Please remember, yields will fluctuate all the time as stock prices move up and down. Also, the amount of dividend can change for the better or worse. Please remember to check these points every time you decide to invest. 2. Sales or Revenue - it is a simple fact, no sales equals no income, no income equals no profits. Therefore, without profits means dividends cannot be paid. As an investor, you need to check whether the sales of your company are increasing. The better the growth rate of sales, the better for your investment as this will lead to more profits which can be paid out as dividends which will lead to your financial freedom. Please check the trend of the sales of your prospective company before investing. 3. Profit - also known as earnings or EPS. Profit helps companies grow and this will lead to more dividends. More profits equal more healthy company. The healthier the company the better chances for dividend growth. Higher dividends give better dividends yields. Also you will have more money to reinvest the dividends to get your passive income and financial freedom. There are many ways to measure profitability; the best is Return on Equity (ROE), the higher the better. 4. Debt - is the amount a company owes. Of course, the lesser the debt the better it is for dividend income investors as the company will have more money to pay you. Too much debt can represent a risk to future dividend payments. The company may go through tough times and earnings drop, therefore affecting the amount of dividend which can be paid. The company may need to the money to pay down debt and it may not have enough left over to sustain the dividend payments. The Debt to Equity (D/E) ratio helps you, the investor to quickly see if the debt is too high.

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