How To Pick a Good Individual Stock to Buy? – Part 3: Dividends and Dividend Growth

by Hank

Look at a company’s dividend history when picking individual stocks to buy.  I love dividends.  I love receiving money for something that I was going to do anyway, like purchase stock.  I personally look for companies who share a part of their profits with their stockholders through dividends.  Dividends are not mandatory in order to purchase a stock, of course, but they do give you a glimpse into the inner working of the company.  Personally, I do not automatically preclude a company from my screen of potential investments if it does not provide a dividend, but I do give dividend paying stocks a higher weight in my selection.


Good companies give dividends after all of their bills are paid and they make a profit.  A company who issues and consistently raises their dividends signals to investors that the company has a solid business with good growth potential over the long term.  Their business plan and strategies are successful, and they distribute a portion those successes to their shareholders.  It’s profit sharing in its purest and most simple form.


I love it when I see my friends drinking Coca-Cola (a stock that I own).  I get a small piece of the profit from every can of soda that they drink.  (Okay…a really, really small piece of the profit since Coke has millions of shareholders and its just one can but a piece of the profit nevertheless.)  Coca-Cola (Stock Symbol: KO) has issued a dividend annually since 1920 and has consistently raised its dividend every year for the last 46 years in a row.  It is not inconceivable for a company whose dividend is growing by 10% each year to have its stock price grow by the same rate or higher as well.


389 of the 500 largest public companies, which comprise the Standard and Poor’s 500 Index (S&P 500), issue dividends to their shareholders.  When you look for stocks to invest in, consider its dividend, dividend growth, and consistency as well.  It is also worth noting that you should be leery of firms who borrow money or issue new shares of common stock in order to continue funding or raising its dividend.  If a stock’s share price has stalled in its upward climb, you can receive a payment in the form of dividend payments for waiting for it to rebound.  I love Google Finance ( and their charts which list a company’s dividends directly on the chart (little “D”s at the bottom of the chart).



Disclaimer: Remember that most of your investing for retirement should be through good growth stock mutual funds.  I recommend only invest in individual stocks with a small amount of money that won’t break the piggybank to test the waters.


Stay tuned for more in our six part series on picking individual stocks.  Next time we will talk about analysts’ and their recommendations.  Their not your friends! 

Six Part Series On Stock Investing Continues…

Check out the rest of the articles in the series if you missed any:

  1. Key Metrics like P/E Ratio
  2. Charts, Graphs, & Averages
  3. Dividends & Dividend Growth
  4. Analysts’ Recommendations
  5. Insider Trading
  6. SEC Filing and Reports

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