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How we screen for dividend stocks
We create our top 100 dividend stock list using the data provided through this dividend screener. We rank stocks based on dividend yield, dividend growth, free cash flow yield, payout ratio, revenue growth, and stock price appreciation. We go through over 2,000 stocks that pay dividends to generate our lists that you will find on our website.
We include the P/E ratio here and in our lists but we do not use it to create a rating.
For dividend yield, we generally like to see the yield be above 2.5% and below 8%. Too high and the dividend is likely to be cut or the stock has suffered a severe price correction. Too low and the stock becomes undesirable for income investors.
Free cash flow yield helps determine how able a company is to continue paying dividends. This is similar to the payout ratio which we prefer to see under 65%. The 5-year dividend growth rate is an important metric. For our ratings, this really must be positive and we prefer to see it above 7%.
We changed from EPS growth to revenue growth in 2018 to help avoid false growth perceptions achieved through stock buybacks. Revenue growth helps give an idea of the future path of the company and its ability to increase its dividend.
Finally, we measure stocks based on stock price appreciation. Our rating system and dividend data is historical and does not predict how a stock will perform in the future. The 12-month stock price appreciation measures performance to help gauge the total return on investment.