Dividend Stocks: 3 Essential Things to Look For

Dividend stocks are an essential part of most investors' portfolios. But to get the best results, you need to pick the best dividend stocks you can find. How can you improve your chances of picking dividend winners?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through the three things to look for in strong dividend stocks. Dan notes that dividend yield is the first thing most investors look at and is in fact important, but counting too much on high-yielding stocks Frontier Communications and Windstream can create big risks. Dan suggests also looking at dividend growth, with well-known companies Procter & Gamble and Coca-Cola having made annual dividend increases for decades and delivering increasing amounts of income to shareholders over time. Finally, Dan talks about the payout ratio and comparing earnings to dividends to make sure a company isn't getting overextended in a way that could force it to make a dividend cut, as Cliffs Natural Resources did last year.