In this chapter, I will show you the dividend growth stocks I selected for our TAM Wealth portfolio. When your choosing stocks for this strategy there are 3 important dates you need to know. These are;
Declaration Date–the date the company's Board of Directors announces the dividend; and the payment per share and payment date.
X–Dividend Date–is the single most important date for dividend investors, it is the first day the stock trades without the dividend.
All investors holding the shares at the closing of the market the day before will receive the dividend. It means you need to own the shares on the day before to get the dividend payout.
Payment Date – the day you will receive the dividend in your account or when a check is mailed out. It's usually going to be a couple of weeks after the ex–dividend date.
Understanding how dividend dates work is useful for long–term investors. Knowing these dates can help you avoid confusion when you buy new stocks too close to the payment date and you don't receive the dividend.
Dividend payouts are based on the Fiscal Year. A fiscal year is any 12 month period that the company uses for accounting purposes. The fiscal year breaks down into 4 Quarters each quarter lasting 3 months, for example;
January 1st–March 31st
April 1st–June 30th,
July 1st–Sept 30th
October 1st–December 31st
A fiscal year by contrast can start and end at any point during the year as long as it comprises a full 12 months.
A company that starts its fiscal year on January 1st and ends it on December 31st operates on a calendar year basis. You need to understand this because this Weekly Dividend Payout Strategy is based on a calendar year.
Before you start choosing the dividend growth stocks for your portfolio, here are 5 tips to help you pick the best dividend growth stocks.
Know what to look for when you're looking for the right stock. Remember this strategy is built for growth and the more shares you own the higher the return.
Step 1. Business/Company must be stable and resilient. If you invest in a company for steady dividends, you want its business model to remain resilient in the long run, even during a recession.
Step 2. Revenue and net profit must be predictable and growing. For a company to pay investors a steady and growing dividend, it must be able to generate predictable and growing revenue and profits year after year.
Step 3. Free cash flow must be healthy. Dividends are paid with cold, hard cash(except for scrip dividends). So besides stable revenue and profits, a company must also be able to generate healthy amounts of free cash flow every year.
Step 4. Track record of paying a stable dividend a company's dividend payout ratio should be consistent and mostly stay below 100%. A payout ratio above 100% means that a company is paying more in dividends than it earns in profits which is unsustainable in the long run.
Step 5. Dividend yield must beat the riskfree rate if you invest in a stock for dividends, its yield should be higher than the risk–free rate you can obtain in the market. In the US, the risk–free rate would be the interest rate of the 3 month US Treasury bill.
Use these 5 steps to screen for high quality dividend–growth stocks which you can add to your portfolio after doing your due diligence.
One question a new investor may have is where to start looking. How do I even know what stocks to do research on?
First you want to build yourself a great WATCHLIST of stocks. Starting with companies you know, and products you use every day. Just write down the names of the companies you see every day as you commute to and from work or taking your kids to school. Household names you use everyday like Johnson & Johnson, Pepsi, Budweiser, Disney, Kimberly–Clark.
Once you have your list then go to Yahoo Finance type in the name of a company or the ticker symbol (usually one to three letters"XXX"), hit enter, and the next page you see should be the stock quote page and navigation bar for that company. On this page, you'll see most of the company's data information with a menu for you to use to get more information about the company.
Click on the historical data tab, then click to change the time period to the last 5 years. Then click the icon for dividend only, this will give you every dividend payment over the last 5 year period.