How to Find Stocks That Pay Dividends

Stock dividends can be attractive as a source of steady income, while you still get to retain the stock shares for further returns. There is also a perception that companies that can afford to pay dividends are generally more stable. The best way to find stocks that pay good dividends is to do your own research with a stock screener, such as those available in Google Finance or Yahoo Finance.

Step 1

Go to your desired website and click on the stock screener link. If the site doesn't have a readily apparent stock screener link, you can probably find it by typing it into the site search box.

Step 2

Choose the criteria for your search. The simplest search would include only the desired dividend yield and market cap of the stock. Dividend yield is the amount of the dividend per share divided by the share price. The higher the yield, the better, with 5 percent or more considered pretty good. Higher market cap is also better because bigger companies tend to be more stable, which is important when buying dividend stocks.

Step 3

To narrow down this list, choose other criteria that characterize solid companies. You may want to check:

earnings per share (EPS) - $1/share or more is considered good;

the forecast long-term EPS growth for the next 5 years - 5 percent or more is good for dividend stocks;

the return on equity (ROE) for the past five years -10 percent or more is good;

recent price behavior - ideally you want a stock that has been moving up in the past quarter, although in tough economic times, this might be hard to find. You might do well to consider stocks that haven't dropped more than 15 percent in the past 13 weeks.

Step 4

If you want to know if one certain stock pays dividends, go to the company's website. Under the "Investors" section, look for news releases about dividends or check the company's filings with the Securities and Exchange Commission.

Tip

If you work with a stockbroker, you can ask him to find you dividend-paying stocks that he recommends.

Warning

Remember that dividends are not an indicator of future performance. However, if a company has paid dividends consistently for a number of years, it's likely that company will do everything possible during downturns to keep paying its dividend. Be wary of companies with ultra-high yields. Yields will go up if the stock price falls, so a high yield could be an indication that the company is under stress.

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