How To Find The Best Dividend Stocks For 2015
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The best dividend stocks for 2015 are going to send you 3 messages, loud and clear.
Before you start tearing through financials…
Before you look at the key performance indicators for dividend stocks like the P/E Ratio and the Dividend Payout Ratio, check out these 3 things.
When you find them, chances are you’ve found one of the best dividend stocks for 2015.
Then, you can shake down the financials, take a look at the dividend history, the P/E Ratio and the Dividend Payout Ratio.
Here’s what I look for before I look at the numbers.
Find A Company That Knows How To Keep It Simple
A lot of very smart investors will tell you they stay away from businesses they don’t understand. This is why you don’t see Warren Buffet investing in many technology companies.
But you know what? Simple is hard. Too many management teams seem to have a knack for taking something easy and making it complicated.
And when things get complicated, when too many things have to go right to make a profit, that’s when you run into trouble.
Want an example? There’s probably one less than ten minutes from your house.
Under the golden arches, there used to be a fairly straightforward business. These days, McDonald’s (MCD) is paying the price for its complicated approach toward changing tastes.
You’d think that selling burgers would be as simple as it gets. But the handwriting was on the wall when McDonald’s started expanding its menu. It’s bloated and out of control.
No wonder McDonald’s is cutting down the number of items on its menu.
And no wonder McDonald’s stock has been roughed up. Look what’s happened to it over the past six months…
So when a company like McDonald’s can’t keep its business simple, what’s a dividend investor to do? How do you avoid these problems?
Listen to what management has to say. Look at what it’s investing in, where it’s expanding, and how it plans to grow. You’ll get a good taste for this in the CEO’s letter to shareholders in the annual report.
Find A Company In The Right Business
The right business doesn’t need glitz and glamor. All it needs is demand.
This is why you see companies like Procter and Gamble and Sherwin Williams on the S&P 500 Dividend Aristrocrats, the lineup of dividend stocks that have rewarded investors with consistent dividend growth for at least 25 years.
People aren’t going to stop painting the spare bedroom and they’re not going to stop buying toothpaste.
But times do change. Tastes that have been locked in for decades, even a century, can change.
This is why Coca-Cola (KO) hasn’t been doing well.
Coke stock underperformed the market by a long shot in 2014, and the company has been up to some strange things.
The strangest of all is trying to sell a lactose free milk called Fairlife… at twice the price of a regular carton of milk.
Why is Coke in the milk business?
Because for the past 10 years, Americans have been drinking less soda. The whole soda category is down.
And when the category is down, it’s hard for the dividend to go up. When you look for the best dividend stocks for 2015, look for companies that are in the kind of business where you have a fighting chance to grow.
You know what happens when demand falls. Prices fall, and it becomes tougher and tougher to deliver the kind of profits that will reward investors with a growing dividend.
Here’s the third thing to look for when you stake out the best dividend stocks for 2015…
Find A Company That Doesn’t Take Crazy Risks
Plenty of fortunes have been made by consistently hitting singles and doubles.
Look for a solid company that plods away, takes smart risks, and flies under the dividend radar.
Disney (DIS) is a great example. It is not known for paying dividends, and has only been paying growing dividends for the past three years.
The company has an inconsistent history of paying dividends… not the best of reputations. In December 2014, it declared a dividend of $1.15, up from 2013 and from 2012.
But in 2010, Disney slashed its dividend, down from $0.35 in 2009 to just $0.04.
What happened? The recession stung profits, which slid from $2.26 to $1.82 per share, and the share price tumbled from $35 to $15.
Disney didn’t get in trouble because it took crazy risks. It got in trouble because consumers reined in discretionary spending when times got tough.
Nothing about the classic Disney business model fundamentally changed.
Today, Disney pays a fairly low yield of 1.2%. But with the payout ratio below 25%, there’s plenty of room to keep increasing dividends.
Will Disney take a crazy risk with a headline-making acquisition? It’s still digesting Pixar, Marvel, and Lucasfilm, so probably not.
Read the annual report, and you won’t be able to decipher any clues about acquisitions that could turn out to be crazy risks.
20/20 Hindsight
Just because the dividend stocks you buy are blue chips doesn’t mean you’re home free…
Check out my article, Don’t Buy The Wrong Blue Chip Dividend Stock.
It’s easy to look at companies like McDonald’s and Coca-Cola and say, “I saw it coming. I knew the healthy eating trend would cause problems.”
But these problems have taken a long time to show up on the dividend doorstep.
Forecasting changing consumer tastes is hard. Forecasting the rate of change is virtually impossible.
Changing tastes have forced McDonald’s to complicate its business. They have trapped Coca-Cola in a business that’s shrinking. And they’ve given Disney an opportunity to acquire powerful new franchises.
Changing consumer tastes create new opportunities for investors. But they also provide established companies with a different opportunity… the opportunity to look ahead, anticipate change, make adjustments, and spend their money wisely.
When you look ahead to find the best dividend stocks for 2015, look beyond the numbers.
Expand your horizon. Try to see what your company will be doing beyond the next quarter, and beyond the next year.
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McDonald’s Corp. (MCD)
Dividend Yield: 3.58%
Annual Payout: $3.40
Payout Ratio: 65.6%
P/E: 0.00
The Walt Disney Company (DIS)
Dividend Yield: 1.20%
Annual Payout: $1.15
Payout Ratio: 24.8%
P/E: 22.45
Coca-Cola Company (KO)
Dividend Yield: 2.85%
Annual Payout: $1.22
Payout Ratio: 59.8%
P/E: 23.85
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Michael Jennings writes and edits DividendStocksResearch.com. Sign up for our free dividend reports and dividend newsletter at https://dividendstocksresearch.com/free-sign-up
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Category: Best Dividend Stocks
