best dividend stock
That's why we like dividend-paying stocks.
Over time, dividends and reinvestment can account for 85%-90% of total stock market returns.
In some cases, the dividends are so steady and increase so much that you actually make more in dividends than you paid to buy the stocks that produce them.
And as inflation concerns grow following QE3, investors need to make sure they are protected.
Money Morning's Global Investing Strategist Martin Hutchinson says dividend-paying stocks offer that protection.
"Do you know what the ultimate investment protection is? It's not gold, and it's certainly not Treasuries. It's dividend stocks," said Hutchinson.
But before you go hunting for the best dividend-paying stocks, let's set some ground rules for evaluating which ones are most valuable.
First, a good cutoff is a stock with a yield close to 3%, preferably higher, and a payout ratio less than 60%. Any higher payout ratio would indicate that the company cannot sustain the dividends, manage debt and grow at the same time.
Second, look for companies that have price/earnings ratios less than 25 and a solid history of paying and increasing dividends.
This establishes a solid benchmark for dividend stocks and their fundamentals. Sometimes a dividend stock can look great because it has a 10% yield, but you have to look at the other numbers to decide if it's a worthy investment.
To avoid those high-yield traps, check out this list of some of the best dividend-paying stocks to buy right now.