Searching for the Best Dividend Stocks

Finding the best dividend stocks takes careful research and analysis, and in the case of economic downturns, the ability to exercise caution before making any final investment decisions.

A perfect example of a reason not to be too quick in your decision making, is to take a look at many financial stocks.

Many of these stocks were paying a dividend of around 4-5% for several years prior to 2008, which in normal times was considered a good, safe rate of return.

Then 2008 arrived and many of these stocks that were paying 4-5% went down so much in value that they were now paying 10% or more in dividends. At first glance, a new investor would jump on this opportunity.

Let's take a deeper look. Upon further analysis you could see that many of these companies were in serious financial trouble. What does that mean as far as dividends are concerned?

It means that as these companies need cash to support continuing business activities, they would need to borrow money to exist, cut expenses or both.

One way to cut expenses is to reduce and/or eliminate the dividend payout. So the illusion of being one of the best dividend stocks was in fact just that, an illusion.

Many of these companies have also borrowed money and have had pressure put on them to cut or restrict any dividend payouts until the money is repaid, and rightfully so. Again, the high payout was an illusion and is now a thing of the past.

Using a stock screener, such as one at MSN can help you find some of the best dividend stocks, but remember, these are only potential opportunities. Doing more research than just using a stock screener will be necessary before making any investments or trades.

Here is a sample screen shot of the results for the highest dividend paying stocks as of today using the screener at with no other parameters set:

high dividend stock screener results

You will notice some very high payouts and should immediately realize that these are probably too good to be true. This is to point out that screening for the highest payouts only, is not a good way to find stocks to invest in.

This results page was made using only one parameter, the highest dividend paying stocks. To narrow the results, you can enter several more parameters when performing your search.

Here is the chart of the second company on the list, Downey Financial, which is listed as paying a 95.24% dividend. As you can see, the stock is down from about $33.00 a year ago and is now trading below .04 cents!

Downey Financial Chart

The point is, don't rely on initial results from any research methods alone. Conduct further research to make the case before making any investments. This is obviously not a stock worth taking a chance on unless it was for pure speculation, and not relying on any dividend at all.

An example of another way to look for the best dividend stocks to invest in would be to look for companies that have a long history of increasing their dividends and have a low debt to equity ratio. Even then, further research is still required before making any final decisions.

If you are considering any long term investments such as these, you may want to look into ways to collect a nice dividend over time plus learn how to lower your initial cost by using options. An Options website that I personally use and which I can suggest to help you learn how to do this is Great Options Trading Strategies. Take a look at the Investing Strategies section on his website to find out more information about ways to lower your initial cost.

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