Before investing in any dividend stock, you must perform due diligence to ensure it’s a suitable stock for your dividend investing needs. The following checklist helps you ask the right due diligence questions to sift through your stock possibilities:
Examine the company’s most recent quarterly statements, including the balance sheet, income statement, and cash flow statement.
Look at the income statement to make sure the company is profitable and whether profits are growing.
Refer to the balance sheet and income statement to calculate the Quick Ratio and Debt Ratio to determine the company’s fiscal strength.
Check out the cash flow statement to ensure the company has sufficient cash to cover liabilities and the dividend without a problem.
Crunch the numbers to examine the company’s fundamentals. Financial statements and Web sites can give you dividend per share, indicated dividend per share, yield, and earnings per share. From these figures, you can determine the price-to-earnings ratio, payout ratio, net margin, and return on equity.
Explore the company’s Web site and the Web sites of its major competitors to find out more about the industry and the individual companies.
Investigate the company on Yahoo! Finance or Google Finance for news articles and key statistics.
Read reports written by stock analysts at investment banks to determine whether the company is performing up to expectations.
Research financial publications online or off.