Picking the right dividend stocks is an essential part of building my Dividend Growth Investing (DGI) Portfolio. I have made many mistakes in the past and I will learn from them. Hopefully I have a better formula for success now to build out a great dividend growth portfolio. Below are the requirements I have formalized. These are requirements that I have come up with from my experience in the many years of investing. Of course, over time I may learn more, and I may further fine tune these requirements.
Stock Purchase Requirements
- Must have positive earnings (EPS > 0)
- Must have a decent yield (Dividend Yield >= 3%)
- Must have dividend growth (5 Year Dividend Growth >= 0%)
- Must have a sizable market cap (Market Cap >= $10MM)
- Must have a healthy balance sheet (Debt is a low %)
I am only interested in companies that already have positive earnings, otherwise they are too speculative for me. I have bet on too many companies in the past that do not have positive earnings but I thought that would always have positive earnings in the near future. It was speculative, and I have lost hundreds of thousands of dollars. It’s a big lesson that I’ve learned. It may be okay to speculate on those stocks once in a while, but I have to keep in mind now that those are speculative positions at best and I shouldn’t bet the house on them.
For my Dividend Growth Investing (DGI) Portfolio, my focus is to build a nice stream of growing income, so therefore it’s important to have a decent yield and companies that will grow their dividends over time. I would like to collect an increasing pile of dividends over the long term.
I don’t want to buy penny stocks so, I want to make sure the companies that I buy are big companies that would not fold easily. Another important factor that I look for is a healthy balance sheet, with low debt ratios. Controlling debt is an essential part to any companies’ survival.
Some of the bad memories that come up to mind is AMD, SDRL and LNCO. AMD is a stock that I had high hopes for and I had made a huge bet on, but unfortunately, they just couldn’t make a breakthrough in the market and their huge debt has caused their stock price to collapse. AMD went from $4 to under $2 now. SDRL is another big mistake that I made in my IRA Portfolio. It was a dividend trap. The company had increase their dividend to $1 per quarter in 2014 and the company said that the dividend was sustainable but soon after that statement was made, the company suspended ALL dividends and the stock price collapsed. SDRL went from around $40 to $7 now. I invested in LNCO when the company had very strong prospects and it looked like the sky was the limit for them. But the company had made some bad decisions and got themselves into loads of debt. After the oil price collapsed, LNCO’s debt weight down on them hard and crushed the company. LNCO went from around $40 to under $3 now. I had suffered huge losses in AMD, SDRL, and LNCO. So now I have learned to be very careful with any companies that has a large amount of debt.