Finding Safe Dividend Stocks

Not all stocks that pay out dividends are created equal. Here's how to evaluate them for growth and reliability.

Hunting for yield but fearful of getting burned? Here are four key questions that will help you "stress-test" a prospective dividend payer.

1) What is the stock's current yield? To get that figure, divide the current annualized dividend by the stock price. Typically, the higher the yield, the greater the likelihood that a company won’t raise its dividend much or, worse, could cut or eliminate it. You can compare a stock’s yield with that of the overall market; the average yield of the companies in Standard & Poor’s 500-stock index is 2%. But a better approach is to compare it with yields of other stocks in the same industry or sector.

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Tom Petruno
Contributing Writer, Kiplinger's Personal Finance
Petruno, a former financial columnist for the Los Angeles Times, is an independent investor, writer and consultant. He lives in L.A.