Dividend Income: How To Pick The Right Companies

John Rockefeller said it best when it comes to dividends, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” I am in the process of creating a solid dividend income portfolio, so one day I will be able to live off of it. Today, I will focus on how to pick dividend stocks and I will discuss how much dividends I should make this year.

You should always pick companies that have a long history of paying a dividend without cutting it. I always try to choose companies that have consistently paid out a solid dividend without any disruptions.  Dividend Aristocrats such as ExxonMobil, Pepsico and AT&T are great examples of reliable companies who steadily payout a dividend. These are corporations that help you sleep well at night. Those who really rely on dividend income need companies like these in their portfolio.

Pick companies with a stable product line. PepsiCo would be a good example. They own some of the most iconic brands such as Doritos, Lays, Quaker, Tropicana, etc. These are beloved brands that will be around for a very long time. I always try to select companies that will do well in any economy.

Pick a company that pays at least 3% dividend yield if possible. If you are wanting income you need to purchase stocks that pay a decent yield. I currently own 19 individual stocks and only four of them pay less than 3% yield. Even the one’s that pay less than 3% are pretty close to that yield. Remember that you are striving for income.

Look for dividend growth. When selecting a stock, I like to see if that company can sustain solid dividend growth. I prefer companies that increase their dividend  of over 4 percent annually. Having a dividend that can outpace the rate of inflation is nice. Once I retire, these steady dividend increases will be like getting a raise each year.

So, how much dividends am I bringing in? I should be able to make close to $7,000 from dividends this year. That is not even counting how much I make from one of my CD’s. If you factor that into the equation, I should make close to $11,000. Obviously, that number is not enough to live on, but I will get there in time. I just have to stick to my plan and be diligent.

In the end, choose companies that you can rely on.  Clearly, selecting the best of breed companies in each sector is always the better way to go. Doing your homework is crucial and remember you are mortal. Yes, you can and will make mistakes from time to time. However, if you stick with your plan and follow these basic rules of picking dividend stocks you will be fine. What are some dividend stocks on your radar?

Leave a Reply

Your email address will not be published. Required fields are marked *