As a passionate dividend investor, I know how crucial it is to have a reliable dividend stock screener to identify the best dividend growth stocks. After receiving numerous questions about my approach, I decided it was time to share my personal approach and dividend stock screener with you. Whether you’re searching for the best dividend stock screener or a free dividend stock screener that’s easy to use, this guide will walk you through the simple criteria I use to spot top dividend stocks.
In this article, I’ll share how I streamlined my screening process to focus on the three key criteria that form the foundation of my dividend growth investing strategy. If you’re looking for a straightforward and effective way to find dividend stocks that fit your investment goals, keep reading—this guide is designed to help you quickly and confidently identify stocks that can may fit in your portfolio.
The Problem with My Old Dividend Stock Screener
The key to a successful dividend stock screener is simplicity. Early in my investing journey, I found myself overcomplicating my approach. Maybe you can relate—I was building complex spreadsheets with tons of metrics. At one point, my old stock screener had over 30 columns!
These metrics came from the many investing books I read, like One Up on Wall Street and The Buffett Way. Every book added more columns to my screener, turning it into a monster.
The worst part? It created the opposite effect—I got lost and always found reasons not to like a stock. I realized I had yet to find the ideal dividend growth stock using so many metrics.
Why I Needed a New Dividend Stock Screener
I needed a dividend stock screener for two main reasons:
- To find new opportunities, preferably undervalued dividend stocks.
- To streamline the process of analyzing companies.
In the end I just follow a very simple process:
With these goals in mind, I developed a simple yet effective dividend stock screener based on three core criteria.
Criteria for My Dividend Stock Screener
Criteria #1: Dividend Yield Above 2.75%
The first criterion is a minimum dividend yield of 2.75%. This threshold ensures that the stocks I consider are likely to provide meaningful returns. With my early retirement plan depending on an average portfolio yield of 3.25% and 6% annual dividend growth, this yield acts as a baseline.
For those new to dividend investing, the dividend yield is calculated by dividing the annual projected dividend by the current share price.
This simple measure helps in filtering out stocks that might not offer sufficient returns.
Criteria #2: Dividend Payout Ratio Below 70%
The dividend payout ratio is a crucial component of my dividend stock screener. I prefer stocks with a payout ratio below 70%, as this indicates that the company is maintaining a balance between rewarding shareholders and reinvesting in its business.
A lower payout ratio generally signifies a more sustainable dividend, which is important for long-term investment success.
For those unfamiliar, the dividend payout ratio is calculated by dividing the annual projected dividend by the company’s earnings per share (EPS) or cash flow per share.
A payout ratio above 70% can signal potential risks, such as slower dividend growth or even a possible dividend cut, especially in competitive or capital-intensive industries. Companies in these sectors often need to reinvest a significant portion of their earnings to remain competitive and drive future growth.
Thus, maintaining a payout ratio below 70% helps ensure that the dividend is both secure and sustainable.
Exception for Real Estate Investment Trusts (REITs):
It’s worth noting that Real Estate Investment Trusts (REITs) are an exception to this rule. REITs are required by law to distribute at least 90% of their earnings to shareholders in the form of dividends. Consequently, they often have higher payout ratios compared to other sectors. For REITs, a higher payout ratio is typical and expected, as their business model is built around passing earnings to investors. However, I still evaluate REITs based on other criteria to ensure they align with my investment goals.
Criteria #3: Increasing Dividends for at Least 5 Years
The third criterion focuses on a consistent track record of dividend increases. I look for companies that have raised their dividends for at least five consecutive years.
This measure helps identify companies with a strong commitment to rewarding shareholders and indicates a level of reliability and resilience. For those new to dividend investing, a company’s history of increasing dividends is crucial for generating a steady income stream.
Ideally, I also seek stocks that grow their dividends at a rate higher than the inflation rate. This ensures that the real value of the dividends keeps pace with or exceeds the rate of inflation, preserving the purchasing power of your investment income.
While a minimum of five years of dividend increases is a solid starting point, focusing on real dividend growth above inflation helps maximize the long-term benefits of dividend investing.
This criterion also helps in spotting potential future dividend aristocrats, even if they are relatively new to the dividend scene. For instance, companies like Apple and Microsoft have demonstrated strong dividend growth that often outpaces inflation, making them great candidates for future inclusion.
There is a small exception though and this relates to European dividend stocks. The approach to rewarding shareholders with dividends in Europe tends to be somewhat different. European companies often prefer to pay out a fixed percentage of their earnings as dividends – typically around 40%.
As a result, it’s not unusual for European companies to have a stable or flat dividend from year to year. However, to meet my investment criteria, I still require these companies to increase their dividends at an average rate of 6% over time.
Where to Find the Best Dividend Stock Screener
Finding a dividend stock screener that meets these criteria can be challenging. The main issue lies with the third criterion, as there are almost no online stock screeners that include dividend growth as a filter.
For U.S. stocks, I recommend the CCC-list available via Dividend Radar. Alternatively, you can use MarketBeat’s dividend stock screener to filter stocks by dividend yield, payout ratio, and dividend growth.
However, finding a reliable dividend stock screener for European stocks is more difficult. I may end up building one myself!
For now I can only recommend you to keep an eye on the stocks being recommended in the European dividend investment community. Most European dividend growth investors bloggers really do their homework.
Alternatively, you can become a premium Dividend Talk subscriber! You’ll get access to over 20 newsletters, in-depth analysis of 80+ stocks (many European!) with assessments on dividend safety and fair value, plus a course on how to read the three key financial statements
Final thoughts
This simple dividend stock screener helps me filter out stocks that don’t meet my criteria as a dividend growth investor. These three criteria are the core of my dividend growth investing philosophy.
Other metrics, like Debt/Equity and Gross Profit Margin, become important during the in-depth analysis phase—not at the screening stage.
Lastly, it’s worth explaining why I don’t include the P/E ratio in my dividend stock screener.
The P/E ratio is essentially derived from the same variables used to calculate the dividend yield and payout ratio. Specifically, the P/E ratio is based on the share price and the trailing twelve months’ earnings per share.
Since these factors are already accounted for in the dividend yield (which uses the share price) and the payout ratio (which uses earnings per share), including the P/E ratio doesn’t provide additional insight for my screener.
And that’s it, this is my personal dividend stock screener.
I hope this guide helps you create your own dividend stock screener. As always, feel free to ask any questions!
Yours Truly,
European Dividend Growth Investor
