If You Invest in ONE Dividend Stock, Make it This One

hey bowtie nation joseph holger and i've just found a dividend stock that has grown its payout by more than 15 percent a year and has increased it by 36 consecutive quarters that's 36 dividend payment increases on a stock that has produced a 20 annual return for five years now i'm going to show you that dividend stock but because this channel isn't just about force feeding you stocks i also want to give you a step by step on how i found it and how to build your own portfolio of top dividend stocks for all you out there in the bowtie nation thank you for spending a part of your day to be here if you're not part of that community yet just click that little red subscribe button it's free and you'll never miss an episode at nation you know we love dividend stocks here on the channel but there are a lot of traps investing in those high-yield stocks a lot of bad stocks in dividend stock rappers stocks like san juan royalty trust that while it might seem like a great deal on a nine percent dividend yield has actually lost money over the last five years because the share price has fallen so much in this video i'll give you seven criteria to find the best dividend stocks to buy walk you through step by step on how to create that dividend stock list then i'm going to show you how to build a portfolio of dividend stocks how to put all this together and reveal that top dividend stock that checks all the boxes we're getting started but first i want to get your input on this which of the seven criteria do you think is most important when picking that dividend stock and which of the seven that we'll talk about do you rely on to find that top dividend stock for your portfolio so scroll down and let me know in the comments below these seven dividend stock criteria are all equally important but let's start with the fun stuff first the dividend and growth info and here i like to see a dividend yield of at least four percent annually which i know might not seem like a high-yield stock but it's still more than three times the 1.3 percent you get on that broader stock market now you can find some good dividend growth stories here with yields of three percent as well but i wouldn't go much further down than that with a yield of three or four percent or more i know management is prioritizing that shareholder cash return now finding the dividend yield is easy enough it's usually on a stock summary page or you can take the annual dividend payment divided by the stock price i also want to see dividend growth of at least five percent a year over the last three or five years you can find how much a company is growing its dividend by looking on yahoo finance or any investing app you go to the historical data tab and change the time period to five years then show only dividends now this is going to show you each dividend payment and how much the company has increased that over the period and like any of these factors i like to look for a certain level for example maybe at least five percent annual dividend growth but you can play around with these it's all to that point of narrowing your list of dividend stocks down to the five or ten best to buy you can also use this for our third criteria here checking the dividend history for missed payments or consecutive increases check to see how often the company increases its dividend payout or if it's cut the dividend in the past now 2020 played hell with dividends and a lot of companies just played it safe either not growing their dividends or even missing a payment so you might want to relax this one a little bit to expand your list of stocks last criteria for dividend health here i like to look for the payout ratio of the stock now that's the percentage of the earnings the company is paying out to cover that dividend and it's a great indicator of dividend sustainability and the potential for growth you take the amount the company is paying out as a dividend for example apple pays out 88 cents a share annually and then divide that by the per share earnings which for apple it was five dollars and 11 cents a share or a payout ratio of 17 now obviously apple isn't much of a dividend stock and the low payout ratio reflects the company's focus on on reinvestment and and share repurchases rather than that payout if you saw that payout ratio get into the 70 or 80 percent range though you'd have to question if the company could continue to pay that much in earnings and still grow sales conversely though for dividend stocks with lower payout ratios it could be a sign that they can increase that payout and not sacrifice growth that gives you four dividend criteria and i like to add two more fundamental checks and one for returns when looking at dividend stocks the first fundamental one here is i want to see strong revenue growth over the last three or five years a company is going to have a tough time growing its dividend if it's not making more sales in and this is a great indicator of competitive advantage as well to find this one just go to the income statement within the company's financials and compare this year's revenues with what it booked in the past and what's important here is when you're comparing stocks is that you compare companies in the same industry so for example retailers against retailers instead of trying to compare something like bed bath and beyond against shares of tesla you have to compare growth rates and other factors against similar companies to to really show you which is outperforming their competitors also on the income statement i'm looking for companies improving their operating profitability now all you out there in the nation know this is probably my single favorite stock ratio the operating margin it's the percentage of sales left over after paying suppliers and operating expenses so core profitability measure for the business a company that can grow its profitability as well as sales is on the way to exploding earnings and dividend potential here you go back to the income statement and find that line marked operating income then you divide that by the total revenue so apple booked almost 100 billion dollars in operating income over the last year on 347 billion in sales for a 28.8 percent margin now that's just slightly higher than the 27 margin posted in 2017 so a little bit more profitable now an increase in that profitability margin probably isn't quite as important here especially if the company is really growing sales fast or the dividend but all of these are going to work together to help you find that very best dividend stock to buy now finally here before i reveal the top dividend stock from these criteria i also want to look at the total return on the stock the return from both the share price and the dividends to find this again we go back to the historical data tab and we'll change the time period to five years but keep it on showing historical price we'll also switch to monthly prices to make the table a little bit more manageable now here you want to look at this adjusted close column that's the stock price adjusted for any dividends or splits so an all-inclusive measure of return and if we scroll down here we see that five years ago apple was trading for just 26.50 a share or a five-fold increase on your investment now we can get the annualized return here by taking this at the exponent of 0.2 we see that apple has produced a 41 annual return which is absolutely amazing nation even though we're looking at dividends and dividend yields here do not neglect that total return especially to make sure that the company isn't destroying value with a lower share price in fact i like to see a total annual return of at least 10 percent or or about twice the dividend yield now as much as i love dividend investing you've got to have growth in your portfolio as well so i'm revealing the top five growth stocks in my own portfolio five disruptive companies for double digit returns i'll leave a link in the video description below it's a totally free report so click through and check that out i'll reveal that top dividend stock idea next but i also want to highlight some criteria for building a complete dividend stock portfolio they say you shouldn't put all your eggs in one basket which i really don't know why you would carry two baskets of eggs but you definitely don't want all your money in just one dividend stock so you want to focus on two ideas here that are going to create that top rate dividend portfolio a mix of different stocks for that diversification and safety and a dividend ladder approach that gives you constant cash flow now for that diversification side look for dividend stocks from different sectors and industries as well as different structures the nation i know those high dividend yields on reits and bdcs are attractive but do not invest all your money in just a few of these special types of companies it's just going to set your portfolio up for a crash if something happens to that industry or a change in the tax law now if you're not sure what industry or business type the company is in you can go to the profile section on yahoo finance and it's going to tell you the sector and industry for example popular dividend stocks and mlps are going to say oil and gas midstream now your business development corporations or bdcs are going to say asset management and the third type of popular dividend stock here these reits are another one to watch and again it's not that any of these particular types of companies aren't bad but they all react similarly to things like interest rates and the economy so having all your stocks in these high-yield groups can set you up for a crash now you also want a mix of total return and high yield stocks yes this is a dividend video and we all love those six percent plus dividend yields but price return can be just as important over the long run just don't forget to look at that graph of the stock price to make sure the management is growing the company not just paying out everything as dividends for that ladder strategy this is where you want at least five or ten dividend stocks in your portfolio paying out in different months of the year and to find when a company pays its dividend you can go to yahoo finance and click again on that historical data tab we'll change the time period to five years and then to show only dividends and click apply this is going to show you when each dividend was paid and while it's not the same day each year it's usually within the same week so using this information you can pick your dividend stocks strategically to make sure you get a dividend check every single month now getting those constant dividends isn't an absolute must if you don't need them right away but it's a great way to build your portfolio for the future before we get to that top dividend stock there were a lot of strong candidates from the list and obviously i wouldn't say put all your money in just that one stock building out a portfolio in different sectors and laddering your dividend payments means investing in a handful of these like like abby ticker a bbv citizens financial group ticker cfg arbor realty abr and even alliance bernstein ticker a b all producing great yields and fundamentals that meet our dividend list criteria but the top dividend stock that met all of these criteria is one that you might not have heard about cogent communication holdings ticker ccoi with its 4.5 dividend yield cogent carries a fifth the world's internet traffic over its network primarily corporate traffic and co-location through 54 data centers the company operates more than 60 000 miles of fiber optic cable providing services to 210 major markets now demand for office internet traffic is obviously down over the last year but it is recovering and overall internet traffic growth is supporting the business now cogent's advantage comes from its low cost position it built its network through leases more than a decade ago when rates were much cheaper its leased network has an average remaining life of more than 20 years still and over 200 network suppliers so cogent is basically just spinning on maintenance and small equipment upgrades now and generating 160 million in operating cash flow checking back on our list of dividend criteria cogen has grown the dividend by 15 percent annually over the last five years and has increased it in every quarter since 2015. revenue has grown at a seven percent annual pace in the five years through 2020 and the operating margin of 19 is an improvement of 8 percent over the period that is a huge increase in profitability so even if revenue growth is a little slower here it's still able to increase profits at a faster pace and shares have produced a 19.6 annual return over the last five years click on the video to the right to see the top seven dividend stocks for both cash flow and growth seven stocks that increase the dividend and the share price don't forget to join the let's talk money community by tapping that subscribe button and clicking the bell notification

Channel: Let's Talk Money! with Joseph Hogue, CFA

Views: 106,675

Rating: 4.8990326 out of 5

Keywords: dividend stocks, dividend portfolio, dividend list, dividend stock list, how to invest in dividend stocks, how to find dividend stocks, dividend stocks portfolio, dividend stocks to buy, top dividend stocks, best dividend stocks, how to pick dividend stocks, dividend stock investing

Id: n-Gn68QifVk

Length: 11min 25sec (685 seconds)

Published: Wed Sep 01 2021