Here's How to Find the Best Dividend Stocks

Finding a great dividend stock is about more than just finding the stock with the biggest yield. Sure, when dividends are your focus, the dividend yield is the most important metric. But there are a number of other factors to consider.

For example, you might find a stock paying a great dividend today. But if the company isn't generating the free cash flow it needs to fund its dividend, it might be forced to cut its dividend tomorrow. (In which case, you'll be stuck owning a not-so-great dividend stock -- and probably one whose stock price is plummeting, as other investors flee the falling dividend).

Of course, if falling dividends are bad, then growing dividends must be good. In that case, you might also look into a dividend stock's payout ratio. This metric expresses, as a percentage, the dividends a company pays relative to the earnings it uses to pay them. A stock with a 100% payout ratio may be "maxed out" and financially incapable of growing its dividend. Conversely, a dividend stock with a payout ratio of 50% might still have room to grow its dividend over time.

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Source: Fool.com