Nowadays, the stock market yields more than the bank. Thanks to the Fed’s monetary stimulus, interest rates and bond yields have fallen to paltry levels, making dividend yields all the more attractive.
But while I’m a fan of juicy dividend yields myself, a word to the wise: You should never pick stocks based on just their dividend.
While high dividend yields can be attractive, that shouldn’t be the only thing you’re looking for when picking stocks. With some companies, a high dividend yield isn’t always a good thing: Sometimes a high yield is actually caused by a drop in stock price.
Moving beyond the yield and current dividend payment, you want to look at the company as a whole and its history of dividend payments. Consistent and steadily increasing payments are a prime sign of a strong company that makes dividends work for you.
And above all else, before buying any stock, you need to take a hard look at its fundamentals. You can do this by running your stocks through my Dividend Grader tool. Like Portfolio Grader, you can enter your tickers and get my buy, hold or sell recommendation in an instant. The difference is that Dividend Grader focuses on four characteristics that are essential to identifying healthy dividend stocks: Dividend Trend, Dividend Reliability, Forward Dividend Growth and Earnings Yield. To arrive at the Total Grade, I blend the results of the four dividend grades and make the final buy, hold or sell recommendation.
To get you started, I’ve run the top dividend stocks in the S&P 500 through both Dividend Grader and Portfolio Garder and I’ve come up with no fewer than 11 stocks that need to be sold right away.
|11 Dividend Stocks to Sell||Symbol||Company Name||Dividend Yield||Dividend Grader Rating||Portfolio Grader Rating|
|AAP||Advance Auto Parts Inc.||0.2%||D||D|
|GE||General Electric Company||3.4%||D||D|
|JCI||Johnson Controls International plc||2.2%||D||D|
|OXY||Occidental Petroleum Corp.||5.0%||F||D|
|XEC||Cimarex Energy Co.||0.3%||F||D|
So it just goes to show that dividends alone won’t ensure profits in this market—we all need to pay attention to fundamental metrics as well.