Research has shown that dividend investing can create financial independence and wealth over time. However when you look at the stock market you’ll find that most of the companies you’ll come across are the same. Relatively boring companies with a long track record of performance. Where do you find the strongest dividend stocks on the market today? and what are the best criteria to find the strongest dividend stocks on the market?
One of the dividend strategies is the method of reduction. The method of reduction is a simple, yet powerful dividend strategy to find the strongest dividend stocks on the market today. You’ll have to start with a large selection of dividend stocks and you have to apply more and more specific and stricter criteria until your list of dividend stocks only consists a few of the strongest dividend stocks which meet all conditions. Those are the strongest dividend stocks on the market.
To find the strongest dividend stocks on the market, the following criteria have to be applied on the selection;
1. Remove all dividend stocks of companies, which have not increased their dividend payouts for 25 consecutive years in a row.
Research has shown that companies which increased their dividend payouts for 25 consecutive years in a row perform 2,41% better per year than the S&P 500 index.
2. Remove all low yield dividend stocks.
Researchers have concluded; High yield dividend stocks perform better than low yield dividend stocks.
3. Remove all companies with a high dividend pay-out ratio.
Companies with a high pay-out ratio do not have the ability to increase dividends in “difficult market conditions”. Forcing them to keep the pay-out ratio or even lower it, whereas low pay-out ratio companies can (keep) raise their dividend even in “difficult market conditions”.
4. Make a selection based on the company’s growth of the last 10 years
Check the earnings and revenue growth of the companies, the higher the growth the more free cash flow a company should be able to generate, the more it can increase it’s dividends.
5. Select the companies with the lowest volatility
This is a risk management selection. The lower the companies volatility, the less the shares of the companies moves with the market’s volatility. The market’s volatility is the highest in times of uncertainty. Like the great depression and financial meltdown of 2008.
That’s the dividend strategy of undervalued dividend stocks by reduction, now you’ll have a list of the strongest dividend stocks on the market.