How to pick good dividend stocks part 2

In my previous post, I have share some steps on how to pick good dividend stocks.   From my past investment experience, I prefer companies that have done well for years and most likely they will do so in the near future.

Other than their earnings and dividend, the next thing I will look at is their debt. With little debt equal to good financial strength, this will make the company safer compare to the rest.

The next thing I would like to see is high returns of equity (ROE). A high ROE means the company is making good profits with amounts of money that the shareholders have invested

Generally, I will look for ROE over 15%. That’s also the benchmark for ROE which Mr Warren Buffett is using.

In a nutshell, a large portion of my investment approach copies the other successful investors. Mr Buffett is one of them and his approach to invest in the stock markets is fairly easy to model & to be put into practise.

Other factors I also look at will be the payout ratios and dividend yieldThe payout ratio is the percentage of profits a company will pay out. Example, if the payout ratio is around 50%. Every $1.00 the profit earns by the company, they will pay 50 cents in the form of dividends and reinvest the rest of 50 cents to grow the company.

To me, the dividend yield is like interest rate & is the percentage I’m getting back in the form of dividends.

With those dividends I’m getting, my income will continue to grow, when I choose to reinvest my dividends to buy more shares to pay me more dividends, so on and so forth.