When you’re just starting out with investing in individual dividend paying stocks, it can be completely overwhelming to figure out what to buy. Honestly, until recently I didn’t think I could do better than buying mutual funds. I have since decided to focus on investing in individual dividend stocks, over funds, because I can better estimate their dividend income potential. Generally speaking dividend investing stocks perform well over the long term, if the company is well managed. Of course, just because a company pays dividends “today” doesn’t guaranty it will be able to continue to pay them in the future. You’ve probably heard the say “past performance does not guaranty future results”.
With my budget, I’m not ready to buy into advice or advanced information services. I’m also not doing many transactions at this point either to balance out cost. So to control the chaos, I built my own list of potential stocks to buy and track them in a Google Spreadsheet so that I have a quick reference when I have cash to invest. To build my list I used several sources. This is just my list of potential targets and there is still further research to be done before actually making a purchase (and deciding if it’s the right time to buy).
Check out what Mutual Funds and EFTs are holding
One of the first places that I check for ideas is the holdings are various funds. In theory their investing analysts are researching stocks and creating the mix that makes sense for their investing goals. If you know the popular mutual funds (possibly ones that you already in your 401k for example), you can go to sites such as Morningstar or Fidelity and search on the fund’s symbol for more information. You will need to check if that stock actually pays dividends, but it’s at least a starting filter.
Read the portfolio updates from the top posters on SeekingAlpha
There are many active investors on SeekingAlpha that monitor their portfolios and publish updates either quarterly or monthly. Their transparency helps shed light into potential stocks to add to my list. Again, I double check if stock pays dividends, but in most cases I’m following authors that are also dividend investors. To start finding potential investors to follow, check out the Dividend section on SeekingAlpha. The author’s follower count and comments on the article help determine how solid the advice is.
Look for lists of companies that have long histories of paying dividends
One of the key tenants of focusing on dividend paying stocks is that there is a strong likelihood that the company will continue to pay dividends in the future. And there are companies that have been paying dividends for years and make it a core principle of their business to continue paying dividends. Their stock price would likely be punished (i.e drop) if they stop paying dividends. For example check out the Dividend Aristocrats companies that have a long history of paying dividends. (https://en.wikipedia.org/wiki/S%26P_500_Dividend_Aristocrats)
Look at the products that you buy for ideas
Ideally you’re investing in profitable companies. What are you buying? What stores look popular? That may be good place to check as well. Peter Lynch, who previously ran the Magellan Fund, once suggested to buy what you know. It’s an interesting theory to help kickstart a list of possible stocks to buy (or at least research further). Also consider what the next generation is buying because you need to make sure that company has future. You likely shouldn’t buy only what you know, but it may help spark a few ideas.
Start building your list of potential stocks buy so that when you have money to invest you can move a little quicker. You can get ideas from:
- mutual funds and EFTS,
- what people are talking about on SeekingAlpha,
- what you buy (or stores that are popular)
- lists of stocks that have long histories of paying stocks (and increasing annual payments)
Once you build your list, you can start researching further, checking the news for updates to help further filter down. Also keep an eye on their Ex-Dividend Dates. I sometimes prioritize what I’ll buy depending on if I’ll be able to catch the next dividend payment or if I just missed it.