How do I pick the right dividend stock? A few indicators I use can help. ETF’s are safer, single stocks provide a little more risk. First things first, find stocks in different sectors and industries to create a diverse portfolio. Picking stocks in the same field have a higher risk of destroying your portfolio. Don’t put all of your eggs in one basket. Here’s my checklist:
- Dividend History – Has it increased over time? Has the company ever cut the dividend? Have they continued to pay the dividend throughout a market crash?
- P/E Ratio – Is the stock fairly valued? You typically want to find a stock under 30X. The lower the P/E ratio the fairer the value.
- RSI – Is the stock oversold or undersold? An oversold stock has a higher chance of decreasing while an undersold stock indicates you might be getting a better deal which could mean share increase. An RSI of 70 is oversold, 30 is undersold.
- Debt – How much debt to income does the company have? Can they support themselves through the tough times?
- Chart – Look at the 10 year history, has it gained share price over time? A nice steady upward hill is the safe bet.
- Longevity – Can it survive the test of time? Has it survived previous market crashes? Will the technology/product be obsolete in 20 years? New things are fragile, old ones are strong, gold for example has stood the test of time. Will something like bitcoin fair the same way?
- Diversify – Do I currently have a stock in the same sector or industry? Will it fair better than strengthen a current stock pick?
- Dividend payout dates – How often does it pay? I typically only pick stock that pay quarterly or monthly. More payouts means more dividends I can reinvest.
- Market emotion – Is the stock down or up because of emotion? How does the companies financials look? Are sales up or down?