If you're a cautious investor, the kind of person who likes conservative companies which pay cash dividends more than those which make pie-in-the-sky promises, you've probably wished for a screener specifically designed to scan the market and red flag stocks meeting your personal definition of a low-risk, dividend-paying stock.
You can easily make your own custom dividend stock screener using the free screener application available at Finiz.com. But before you begin you need some idea of what metrics you should have the screener evaluate.
According to most experts, dividend yield -- the next 12 month's projected dividends divided by the share price -- is a crucial component in stock dividend screeners. The idea is, you enter the yield you would like to get, say 3 percent, and the screener eliminates all stocks projected to deliver less than that.
Another factor you should program your screener to look at is market capitalization. Whether you prefer to invest in small dividend-paying companies or large ones is. of course, up to you, but most experts recommend setting your screener to eliminate companies with a cap under $500 million because big companies tend to be more reliable dividend declarers than small ones.
One more factor the gurus recommend screening for is debt ratio because low-debt companies are a safer bet than companies with mountainous debts. Requiring zero debt would be self defeating, however, because most dividend stocks are those of established firms which have built up a certain amount of debt over the years.
Setting your screener to eliminate companies with a debt/equity ratio of no more than 0.5 is generally considered reasonable.
And finally there's the most important criteria of all, profitability. You don't have to be a brain surgeon to realize that the absence of profit generally means the absence of a dividend, so set your screener to require a decent return on equity -- say, 12-15 percent -- before bringing a stock to your attention.
Like most other stock market analytics, a stock dividend screener can be an extremely helpful tool if used intelligently. It is, however, subject to the Garbage In/Garbage Out (GIGO) syndrome. If you don't give the screener the correct instructions about what to leave in the returns and what to take out, it won't give you the money-making stock tips you're hoping for.