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What To Look For In Dividend Paying Stocks - 5 Criteria To Know Before You Buy

Mar. 11, 2021 12:21 PM ETKellogg Company (K), SO, JNJ
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Seeking Alpha Analyst Since 2019

"The way to wealth lies in buying and holding stocks in good companies and letting time work for you."

The Bronze Spoon Investor with Steven Labrenz is a channel dedicated to teaching about conservative life principles and how to get ahead in life even if you were not fed with a silver spoon as a child. The channel is a series about growing wealth through purchasing mutual funds, ETF's and stocks. We discuss breaking investment news, commentary on current events and answer community questions.

Steven Labrenz is a self-motivated and dynamic leader who is comfortable with challenging the status quo. He has 10+ years of experience driving sales growth for various private and public multi-national organizations located around the United States. Steven was born in Alaska and earned a Bachelor of Science in Business Degree from the Carlson School of Management at the University of Minnesota in 2011.  


  • It's a smart idea to familiarize yourself with what dividend stocks are.
  • A few key concepts can help you find excellent dividend stocks for your portfolio.
  • The way to build wealth is with dividend paying companies like Kellog.
  • Some companies like Johnson & Johnson have been paying a growing their dividend for 59 years!
  • Steady and slow is the way to go, just look at utility stalwart Southern Company as the benchmark.

>Payout ratio: A stock's payout ratio is the amount of money it pays per share in dividends, divided by its earnings per share. In other words, this tells you what percentage of earnings a stock pays to shareholders. A reasonably low payout ratio (say 60% or less) is a good sign that the dividend is sustainable.

>History of raises: It's a very good sign when a company like (JNJ) raises its dividend year after year, especially when it can continue to do so during recessions and other tough economic times like the COVID-19 pandemic.

>Steady revenue and earnings growth: When looking for the best dividend stocks to own for the long term, prioritize stability in the companies you consider. Erratic revenue (up one year, down the next) and all-over-the-board earnings can be signs of trouble.  Steady growth like (SO) provides plenty of income for the future. 

>Durable competitive advantages: This is perhaps the most important feature to look for. A durable competitive advantage can come in several forms, such as a proprietary technology, high barriers to entry, high customer switching costs, or a powerful brand name, just to name a few.

>High yield: This is last on the list for a reason. A high yield is obviously preferable to a lower one, but only if the other four criteria are met. A high dividend like Kellogg's (K) 3.82% is only as strong as the business that supports it, so compare dividend yields after you make sure the business is healthy and the payout is stable.

Analyst's Disclosure: I/we have a beneficial short position in the shares of SO either through stock ownership, options, or other derivatives.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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