How to find the best dividend stocks

Want to invest in stocks that provide an income in the form of regular payouts, in addition to offering the potential for price appreciation?
By: Jonah Keri
Jonah Keri
Jonah Keri is a trader and analyst who spent 11 years at Investor's Business Daily covering the markets. He now writes… read more.
Updated: May 12, 2021
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Buying dividend stocks could be a great investment option for you. In this article, we’ll explain what dividend stocks are, how to find the best dividend stocks, and how to make money investing in dividend stocks.

The top 10 best dividend stocks to buy

#Stock symbolCompany name
1MMM3M Company
2ADPAutomatic Data Processing
8PRUPrudential Financial
9TXNTexas Instruments
10TDToronto-Dominion Bank
List selected by our team of analysts, updated 7th September 2020.

Latest dividend stock analysis

Apple shares have weakened from their recent highs above $140, and the current price stands around $128. Apple reported better than expected second-quarter results last week, and the company increased the quarterly dividend by 7.3%. Fundamental analysis: Morgan Stanley raised its target on Apple from $158 to $161 Apple shares…
Under Armour (NYSE: UAA) shares have weakened from their recent highs despite better than expected first-quarter results. The U.S. stock market is losing some ground this Tuesday, which also negatively influences Under Armour shares. Fundamental analysis: Under Armour shares are not undervalued Under Armour is an American sports equipment…
McDonald’s shares advanced after the company reported better than expected first-quarter results and closed the week at $236,08. Fundamental analysis: UBS raised its price target from $240 to $255 Even with the COVID-19 pandemic, this company’s business is going well, and McDonald’s reported better than expected first-quarter results last week.

What are dividend stocks?

A dividend stock is a stock in a company that pays out a portion of its profits to investors on a regular basis. These payments are known as dividends, and are typically paid out at the end of every quarter (every three months). Dividend stocks offer the double advantage of this added income stream and the possibility of accruing further value over time if the stock’s price rises.

Typical characteristics of dividend stocks

Dividend stocks are primarily defined as stocks that pay out regular dividends to investors. These payouts are usually quarterly, but can also be monthly, annual, or semi-annual. It is also worth noting that cash-based dividends can change over time, depending on decisions made by a company’s board of directors, and dividend payments can stop if a company falls on hard times. Growth-minded investors who don’t need access to dividend payouts often choose to reinvest those dividends into buying more shares and further growing their portfolios.

Are dividend stocks a good investment?

Dividend stocks can be a good investment, depending on your specific investing goals and the state of the stock market. Dividend stocks are often a popular choice for older investors who might be retired or semi-retired and looking for ways to generate regular cash flow from their investments. That said, dividend stocks don’t tend to appreciate as much in price as growth stocks, which reinvest their profits back into the growth of the company, so it all comes down to what your current investment goals are.

How do I find the best dividend stocks?

There are lots of ways to find the best dividend stocks, so we have compiled this list of different tips for you when searching for your next investment. All these points are explained in more detail below.

  1. Use experts and news aggregators
  2. Follow big players and wealth managers 
  3. Look out for trends and societal changes
  4. Consider your own spending habits and the products you prefer
  5. Use stock screening tools and set criteria

1. Use experts and news aggregators

Sites such as Bloomberg and Yahoo Finance offer excellent economic insights and company updates, so if that’s the kind of content you’re seeking, those are good places to start. We also recommend you check out the news and analysis that we offer here on Invezz, as we publish regular stock analyses to help you make the right choices with your money. If you want up-to-the-minute updates on leading dividend stocks such as The Blackstone Group and Apollo Global Management, you’ve come to the right place.

2. Follow big players and wealth managers

The biggest investors are the ones that make the market move. Often called “whales,” these big investors consist of hedge fund, pension fund, and mutual fund managers as well as investment banks – some of whom manage portfolios worth hundreds of millions or even billions of dollars. Follow what those whales do, since they’re often well ahead of the curve when it comes to finding the next great dividend stocks.

As times change, new opportunities emerge for companies to grow, gain market share, and become great investment opportunities. For instance, the growth of smartphone usage in Russia, Armenia, and Belarus helped turn Mobile TeleSystems into one of the most successful dividend stocks of the past few years. Spot one of these trends early and invest in the right dividend stock, and you can generate a healthy income as well as increasing the value of your portfolio as the stock’s price rises.

4. Consider your own spending habits and the products you prefer

It’s not just macroeconomic factors that can give you clues about a stock’s potential. Just as societal changes in spending habits can be a good indicator of future investment opportunities, your own habits can teach you a lot too. If you’re excited about a new tech gadget that you started using, it’s likely that you’re not the only one. You can apply that enthusiasm toward investing in the stock of the company that makes that gadget.

5. Use stock screening tools and set criteria

You’ll find lots of stock screening tools and software online that allow you to sort stocks based on many kinds of different criteria. Since the goal is to identify top dividend stocks, you can set your search to sort stocks based on earnings growth compared to the size of their quarterly dividends. Yahoo Finance and Marketwatch are two of the best-known investing sites that offer those kinds of tools, and you’ll also find strong screening tools for dividend stocks right here on Invezz.

Are there any risks I should know about?

Yes, there’s always risk when it comes to investing. Opportunity cost is an economic term that refers to the opportunities you miss out on when you choose one decision instead of another, and is a term very relevant to dividend stocks. Dividend stocks carry opportunity cost, in that you might be sacrificing potentially bigger gains available to growth stock investors for the sake of collecting smaller quarterly dividend payouts.

Another risk comes in the form of bear markets: Stocks of all kinds, including dividend stocks, are subject to major potential losses when the broad market goes south. If there’s a market crash, you could even see many stocks stop paying dividends altogether.

What should I do now? 

If you’re ready to invest, simply pick an online broker, select the dividend stocks you want to buy, and make your purchase. Still not feeling ready to invest? That’s ok. Check out the many easy-to-understand trading courses and up-to-the-minute news updates offered right here on this site.

Jonah Keri
Financial Writer
Jonah Keri is a trader and analyst who spent 11 years at Investor's Business Daily covering the markets. He now writes about stocks, cryptocurrencies, and other… read more.