Passive Profit Guide

6 Powerful Methods

Dividend investing stays a cornerstone strategy for those seeking steady income and long-term wealth accumulation. Empower, a cutting-edge financial platform, is improving the way investors approach dividend screening and analysis.

In this comprehensive guide, we’ll explore six powerful methods for finding dividends using Empower’s suite of tools.

1. Mastering Empower’s Dividend Stock Screener

Empower’s dividend stock screener is a powerhouse tool that allows investors to sift through thousands of stocks, applying custom filters to pinpoint investments that align with specific dividend criteria.

To get started, navigate to the stock research section of the Empower platform. Here, you’ll find a wealth of filtering options designed to help you identify promising dividend-paying companies.

Key Parameters to Consider:

Dividend yield: Set a least threshold to focus on stocks offering attractive income potential. While high yields can be tempting, they may also signal unsustainable payouts or underlying company issues.

A good starting point is to look for yields between 2% and 6%, depending on your risk tolerance and income needs.

Dividend growth rate: Filter for companies that have consistently increased their dividends over time. This can be a strong indicator of financial health and management’s commitment to shareholder returns.

Look for stocks with a 5-year dividend growth rate of at least 5% to 10% annually.

Payout ratio: Seek out stocks with sustainable payout ratios, typically below 75% for most industries. This confirms the company has room to maintain or grow it’s dividend, even if earnings fluctuate.

For REITs and some utilities, higher payout ratios may be acceptable because of their business models.

Dividend frequency: Choose between monthly, quarterly, or annual dividend payments based on your income needs and cash flow preferences. Monthly dividends can provide more consistent cash flow, while quarterly payments are more common among U.S. stocks.

Sector: Focus on specific industries known for their dividend-paying stocks, such as utilities, consumer staples, or real estate investment trusts (REITs). Each sector has it’s own characteristics and risks, so diversifying across many dividend-paying sectors can help balance your portfolio.

As you adjust these filters, you’ll create a customized list of dividend stocks tailored to your investment goals and risk tolerance. However, the screener should serve as a starting point for deeper research, not the final word on your investment decisions.

Advanced Screening Techniques:

To refine your search further, consider combining the dividend screener with other financial metrics:

Earnings growth: Look for companies with consistent earnings growth, as this supports future dividend increases. A 5-year earnings growth rate of 5% or higher can indicate a company’s ability to sustain and grow it’s dividend.

Debt-to-equity ratio: A lower debt-to-equity ratio often shows a stronger balance sheet and less financial risk. Aim for companies with a debt-to-equity ratio below 2, though this can vary by industry.

Price-to-earnings ratio (P/E): Compare a stock’s P/E ratio to it’s industry average to gauge it’s valuation. A lower P/E might indicate a better value, but be sure to understand why the stock is trading at a discount.

Return on equity (ROE): A high ROE can indicate effective use of shareholder capital. Look for companies with an ROE above 15% as a starting point.

By combining these extra metrics with dividend-specific criteria, you’ll create a more comprehensive view of a company’s financial health and dividend sustainability.

Remember, the stock screener is a powerful tool, but it’s just the first step. Always conduct thorough research on person companies before making investment decisions.

Read annual reports, analyze financial statements, and stay informed about industry trends that could impact a company’s ability to maintain or grow it’s dividend.

2. Exploring Dividend Aristocrats and Kings

For investors seeking the most reliable dividend stocks, Empower provides access to information on Dividend Aristocrats and Dividend Kings. These elite groups of companies are renowned for their exceptional track records of consistent dividend growth over extended periods.

Dividend Aristocrats:

Dividend Aristocrats are S& -P 500 companies that have increased their dividends for at least 25 consecutive years. This group represents a select set of blue-chip companies with proven track records of weathering various economic cycles while maintaining their commitment to shareholders.

To find Dividend Aristocrats using Empower:

1. Use the stock screener to filter for companies with 25+ years of dividend growth.
2. Cross-reference the results with the official S& -P 500 Dividend Aristocrats list, which Empower provides access to.
3. Analyze each company’s current financial health, including payout ratios, earnings growth, and industry positioning.

Some well-known Dividend Aristocrats include:

• Johnson & – Johnson (JNJ)
• Procter & – Gamble (PG)
• Coca-Cola (KO)
• Walmart (WMT)

Dividend Kings:

Dividend Kings take dividend consistency a step further, having raised their dividends for an impressive 50 or more consecutive years. This ultra-elite group consists of companies with exceptionally stable business models and strong brand recognition.

To uncover Dividend Kings using Empower:

1. Extend your stock screener search to companies with 50+ years of dividend increases.
2. Review Empower’s curated list of Dividend Kings, which is updated regularly.
3. Conduct in-depth analysis on each company’s current financial metrics and future growth prospects.

Examples of Dividend Kings include:

• 3M Company (MMM)
• Emerson Electric (EMR)
• Genuine Parts Company (GPC)
• Colgate-Palmolive (CL)

Analyzing Aristocrats and Kings:

While past performance doesn’t guarantee future results, these companies have demonstrated a strong commitment to shareholder returns through consistent dividend growth. Their long-standing dividend policies often reflect:

• Strong brand recognition
• Stable cash flows
• Resilient business models
• Conservative financial management

However, it’s crucial to conduct thorough research on each company’s current financial health and future prospects before investing. Even Dividend Aristocrats and Kings can face challenges that may impact their ability to maintain their dividend growth streaks.

When analyzing these elite dividend stocks, pay close attention to:

Current payout ratios: Even for established dividend payers, a payout ratio consistently above 80% may be unsustainable long-term.

Earnings growth: Look for companies that are still growing earnings, not just maintaining them. This provides room for future dividend increases.

Industry positioning: Assess how well the company is adapting to changes in it’s industry. Even long-standing businesses can be disrupted by new technologies or changing consumer preferences.

Debt levels: High debt can limit a company’s flexibility in maintaining dividend payments during economic downturns.

Free cash flow: Strong free cash flow generation supports dividend sustainability and potential increases.

Use Empower’s financial statement analysis tools to dig deep into these metrics for each Aristocrat or King you’re considering.

Remember, while Dividend Aristocrats and Kings have impressive track records, they’re not immune to market forces. Always diversify your portfolio and avoid overconcentration in any single stock or sector, no matter how reliable it’s dividend history may be.

3. Leveraging Empower’s Dividend Calendar

Timing can be a critical factor in dividend investing, especially for those employing strategies like dividend capture or managing cash flow from their investments. Empower’s dividend calendar is an invaluable tool for staying on top of upcoming dividend payments and important dates.

Accessing and Using the Dividend Calendar:

1. Navigate to the research tools section of Empower’s platform.
2. Locate and open the dividend calendar feature.
3. Set up alerts for specific stocks or create a watchlist of potential dividend investments.
4. Pay close attention to key dates, especially the ex-dividend date.

Understanding Key Dividend Dates:

Declaration Date: The day the company’s board of directors announces the dividend payment.

Ex-Dividend Date: The cutoff date to be eligible for the next dividend payment. You must own the stock before this date to receive the upcoming dividend.

Record Date: The date the company checks it’s records to identify shareholders eligible for the dividend payment.

Payment Date: The day the dividend is actually paid to shareholders.

Maximizing the Dividend Calendar:

1. Plan your investment timing: If you’re looking to maximize dividend income or apply a dividend capture strategy, the calendar helps you time your purchases and sales effectively.
2. Manage cash flow: For investors relying on dividends for income, the calendar helps forecast when payments will arrive, aiding in personal budgeting and financial planning.
3. Identify seasonal patterns: Some companies may increase their dividends at certain times of the year, while others maintain a consistent schedule.

Understanding these patterns can inform your investment strategy.

4. Track dividend consistency: Regular use of the calendar allows you to watch how consistently companies maintain their dividend schedules, which can be an indicator of financial health.
5. Coordinate with earnings releases: Many companies announce dividend increases along with their quarterly earnings.

Use the calendar in conjunction with earnings schedules to anticipate potential dividend news.

Advanced Calendar Strategies:

Dividend Capture: This strategy involves buying stocks just before the ex-dividend date and selling shortly after to capture the dividend payment. While this can be profitable, be aware of potential share price adjustments and tax implications.

Reinvestment Planning: If you’re reinvesting dividends, use the calendar to anticipate when new shares will be purchased, helping you track your growing position over time.

Tax Planning: For taxable accounts, the dividend calendar can help you estimate your dividend income for the year, aiding in tax planning and estimated tax payments.

Portfolio Rebalancing: Time your portfolio rebalancing around dividend payments to minimize potential tax impacts and maintain your desired asset allocation.

Remember that dividend dates are subject to change, so it’s essential to verify the information with official company announcements or regulatory filings. Empower’s calendar is a great starting point, but always double-check critical dates before making investment decisions.

By effectively using Empower’s dividend calendar, you can enhance your dividend investing strategy, improve cash flow management, and potentially increase your overall returns through careful timing and planning.

4. Analyzing Dividend ETFs and Mutual Funds

For investors looking to diversify their dividend strategy or benefit from professional management, Empower offers robust tools to research dividend-focused ETFs and mutual funds. These investment vehicles can provide exposure to a broad range of dividend-paying stocks, reducing single-stock risk and offering convenience.

Finding Dividend ETFs and Mutual Funds on Empower:

1. Access Empower’s fund screener tool.
2. Apply filters for dividend-focused funds, including:

• Fund type (ETF or mutual fund)
• Dividend yield
• Expense ratio
• Performance history

3. Review the resulting list of funds that match your criteria.

Key Factors to Consider:

Expense Ratio: This is the annual fee charged by the fund, expressed as a percentage of assets. Lower expense ratios mean more of the fund’s returns go directly to investors.

For dividend ETFs, look for expense ratios below 0.50%, while actively managed mutual funds may have slightly higher fees.

Dividend Yield: Compare the fund’s yield to it’s benchmark index and peer group. Be cautious of unusually high yields, as they may indicate higher risk or unsustainable payouts.

Total Return: Look beyond just the dividend yield to assess the fund’s overall performance, including capital appreciation. A fund with a moderate yield but strong total return may be preferable to a high-yield fund with poor price performance.

Holdings Analysis: Examine the fund’s top holdings and sector allocations. This information is readily available through Empower’s fund research tools.

Ensure the fund’s composition aligns with your investment thesis and risk tolerance.

Dividend Growth History: Review the fund’s track record of maintaining or growing it’s distributions, even during market downturns. Consistent dividend growth can be a sign of a well-managed fund with a sustainable strategy.

Distribution Frequency: Consider how often the fund pays dividends (monthly, quarterly, or annually) and how this aligns with your income needs.

Tax Efficiency: Some funds may be more tax-efficient than others, especially in taxable accounts. Consider the impact of qualified vs. non-qualified dividends on your tax situation.

Empower provides tax analysis tools to help you understand the potential tax implications of different funds.

Comparing Dividend Fund Strategies:

Dividend funds can employ various strategies to achieve their income goals. Use Empower’s comparison tools to assess many funds side-by-side, considering both their dividend characteristics and overall investment approach:

High Yield Focus: These funds prioritize current income, often investing in higher-yielding stocks across various sectors. While they may offer attractive yields, be aware of potential risks associated with high-yield stocks.

Dividend Growth: These funds focus on companies with a history of consistently increasing their dividends. They may have lower current yields but offer potential for long-term income growth and capital appreciation.

Quality Dividend: These funds seek a balance between current yield and dividend growth, focusing on companies with strong financials and sustainable payout ratios.

Sector-Specific: Some funds concentrate on dividend-paying stocks within specific sectors, such as utilities or REITs. These can offer higher yields but may lack diversification.

Global Dividend: These funds invest in dividend-paying stocks from around the world, offering international diversification but potentially introducing currency risk.

Advanced Analysis Techniques:

Performance in Different Market Conditions: Use Empower’s historical data to analyze how the fund has performed during various market cycles, including periods of high inflation, rising interest rates, and economic recessions.

Risk Metrics: Evaluate the fund’s risk profile using metrics like standard deviation, beta, and Sharpe ratio. These can help you understand the fund’s volatility and risk-adjusted returns.

Dividend Consistency: Look at the fund’s dividend payment history over time. Has it maintained stable distributions, or have there been significant fluctuations or cuts?

Manager Tenure: For actively managed mutual funds, consider the tenure of the fund manager. Longer-tenured managers may have more experience navigating different market conditions.

Asset Growth: Rapid asset growth in a fund can sometimes lead to changes in strategy or performance. Use Empower’s tools to track the fund’s asset size over time.

By thoroughly analyzing dividend ETFs and mutual funds using Empower’s comprehensive tools, you can identify investment vehicles that align with your income goals, risk tolerance, and overall investment strategy. Remember to periodically review your fund holdings to confirm they continue to meet your goals as market conditions and your personal financial situation evolve.

5. Conducting Comprehensive Dividend Stock Analysis

Empower provides a wealth of data and analytical tools to help you conduct in-depth research on person dividend stocks. This comprehensive analysis is crucial for building a strong dividend portfolio and avoiding potential dividend traps.

Key Areas of Focus:

1. Dividend History

Use Empower’s historical data to visualize a company’s dividend track record:

• Look for consistent growth over time
• Analyze how the company handled dividends during economic downturns
• Calculate the compound annual growth rate (CAGR) of dividends over 5 and 10-year periods

A company that has maintained or increased it’s dividend through various economic cycles shows financial resilience and a strong commitment to shareholder returns.

2. Payout Ratio

A sustainable payout ratio shows the company can maintain it’s dividend even if earnings fluctuate. Use Empower’s financial ratios to assess payout sustainability:

• For most industries, aim for a payout ratio below 75%
• Compare the company’s payout ratio to industry peers
• Look at both earnings payout ratio and free cash flow payout ratio for a more finish picture

Remember that acceptable payout ratios can vary by industry. REITs and some utilities, for example, often have higher payout ratios because of their business models.

3. Earnings and Free Cash Flow Growth

These metrics support future dividend increases and overall company health. Analyze trends using Empower’s financial statement data and growth projections:

• Look for consistent year-over-year growth in both earnings per share (EPS) and free cash flow
• Compare the company’s growth rates to industry averages
• Pay attention to any significant discrepancies between earnings and cash flow trends

Strong and consistent growth in both earnings and free cash flow provides a solid foundation for future dividend increases.

4. Debt Levels

High debt can put pressure on a company’s ability to maintain or grow dividends. Examine the balance sheet and debt ratios to assess financial stability:

• Review the debt-to-equity ratio and compare it to industry peers
• Analyze the company’s interest coverage ratio to confirm it can comfortably meet it’s debt obligations
• Look at the trend in total debt over time – is it increasing, decreasing, or stable?

A company with a manageable debt load is better positioned to maintain it’s dividend payments, even during economic downturns.

5. Industry Trends

Consider how broader economic and sector-specific trends might impact the company’s future earnings and dividend-paying ability. Empower’s industry analysis tools can provide valuable context:

• Review industry growth projections and how they align with the company’s positioning
• Analyze the impact of technological changes or regulatory shifts on the industry
• Consider cyclical factors that may affect the company’s earnings and dividend stability

Understanding the industry landscape helps you anticipate potential challenges or opportunities that could impact the company’s dividend policy.

6. Management’s Dividend Policy

Look for statements from company leadership regarding their commitment to dividends. Empower’s news feed and earnings call transcripts can be valuable sources for this information:

• Review recent earnings call transcripts for management’s comments on dividend policy
• Look for explicit statements about dividend growth targets or payout ratio goals
• Assess management’s track record of following through on dividend-related commitments

A clear and consistent dividend policy from management can provide confidence in the sustainability and growth of future dividend payments.

7. Competitive Positioning

Assess the company’s market share, brand strength, and competitive advantages that support long-term profitability and dividend growth:

• Analyze the company’s market share trends over time
• Evaluate brand strength and customer loyalty metrics
• Identify any unique competitive advantages or moats that protect the company’s profitability

Companies with strong competitive positions are better equipped to maintain and grow their dividends over the long term.

Advanced Analysis Techniques:

Dividend Discount Model (DDM): Use Empower’s financial data to construct a DDM, which can help you estimate the intrinsic value of a dividend-paying stock based on it’s expected future dividend payments.

Peer Comparison: Utilize Empower’s comparison tools to benchmark the company’s dividend metrics against it’s closest competitors and industry averages.

Scenario Analysis: Model different scenarios (e.g., economic recession, interest rate changes) to assess how the company’s dividend might be affected under various conditions.

Insider Trading Activity: Review insider buying and selling patterns, which can sometimes provide insights into management’s confidence in the company’s future prospects.

Dividend Coverage Ratio: Calculate this ratio (earnings per share divided by dividends per share) to assess how well the company’s earnings cover it’s dividend payments.

By leveraging Empower’s comprehensive data and analysis tools, you can conduct thorough research on dividend stocks, helping you build a robust and sustainable dividend portfolio. Remember to regularly review and update your analysis as company and market conditions evolve.

6. Implementing Dividend Reinvestment Strategies

Empower helps you find dividend-paying investments and provides tools to apply powerful dividend reinvestment strategies. Dividend reinvestment can significantly boost your long-term returns through the power of compounding.

Setting Up Dividend Reinvestment:

1. Navigate to your account settings within the Empower platform.
2. Look for the dividend reinvestment options, which may be under “Account Preferences” or a similar section.
3. Enable automatic dividend reinvestment for your holdings.

You can typically choose to reinvest dividends for all securities or select specific stocks or funds.

Tracking Reinvestment Impact:

Empower’s portfolio analysis tools allow you to watch the effect of reinvested dividends on your overall returns:

1. Use the performance tracking feature to view total return, including reinvested dividends.
2. Compare the growth of positions with reinvested dividends to those without to see the compounding effect in action.
3. Utilize Empower’s dividend reinvestment calculator to project future growth based on different reinvestment scenarios.

Key Considerations for Dividend Reinvestment:

Tax Implications: Reinvested dividends are still taxable in the year they’re received (unless held in a tax-advantaged account). Use Empower’s tax reporting features to stay on top of your obligations:

• Review your annual tax summary provided by Empower
• Keep track of reinvested dividends to accurately calculate cost basis when selling shares
• Consider the impact on your overall tax situation, especially if you’re near a higher tax bracket

Diversification: Automatic reinvestment can lead to overconcentration in certain stocks over time. Periodically review and rebalance your portfolio as needed:

• Use Empower’s allocation analysis tools to watch your portfolio’s sector and person stock weightings
• Set alerts for when a position exceeds a certain percentage of your portfolio
• Consider redirecting reinvested dividends to underweight positions or new investments to maintain diversification

Cash Flow Needs: If you rely on dividends for income, you may want to selectively reinvest as opposed to automatically reinvesting all dividends:

• Use Empower’s cash flow projections to help strike the right balance between reinvestment and income
• Consider partial reinvestment strategies, where you reinvest a portion of dividends and take the rest as cash
• Adjust your reinvestment strategy as your financial needs change over time

Advanced Reinvestment Strategies:

Dollar-Cost Averaging: Dividend reinvestment naturally applies a dollar-cost averaging strategy, helping to smooth out the effects of market volatility over time.

Compounding Acceleration: Reinvesting dividends can significantly accelerate the compounding process. Use Empower’s calculators to see how reinvestment affects your long-term returns compared to taking dividends as cash.

Reinvestment in Bear Markets: Consider increasing your reinvestment during market downturns to take advantage of lower stock prices, potentially boosting long-term returns.

Selective Reinvestment: Instead of automatically reinvesting in the same stock, consider redirecting dividends to your highest-conviction ideas or undervalued opportunities within your portfolio.

Reinvestment in ETFs or Mutual Funds: For a more diversified approach, consider reinvesting dividends from person stocks into dividend-focused ETFs or mutual funds.

Monitoring and Adjusting Your Strategy:

Regularly review your dividend reinvestment strategy using Empower’s tools:

1. Analyze the performance of reinvested positions versus non-reinvested ones.
2. Assess the impact on your overall portfolio allocation and rebalance if necessary.
3. Review your cash flow needs and adjust reinvestment settings accordingly.
4. Consider tax-loss harvesting opportunities in taxable accounts to offset gains from dividend income.

By combining Empower’s dividend reinvestment features with it’s analytical tools, you can create a powerful strategy for long-term wealth building through dividends. Experiment with different reinvestment scenarios to find the approach that best aligns with your financial goals and risk tolerance.

Remember that dividend reinvestment is a long-term strategy. While it can significantly boost returns over time, it needs patience and consistency to see the full benefits of compounding.

People Also Asked

What is a good dividend yield?

A good dividend yield typically ranges from 2% to 6%, depending on the sector and overall market conditions. However, yields above 6% may indicate higher risk or unsustainable payouts.

How often are dividends paid?

Most U.S. companies pay dividends quarterly, but some pay monthly or annually. The frequency can vary based on the company’s policy and industry norms.

What is the difference between qualified and non-qualified dividends?

Qualified dividends are taxed at lower capital gains rates, while non-qualified dividends are taxed as ordinary income. Generally, dividends from U.S. companies held for a certain period are considered qualified.

Can dividends be cut or suspended?

Yes, companies can reduce, suspend, or eliminate their dividends, especially during financial difficulties or economic downturns. This is why it’s crucial to analyze a company’s financial health and dividend sustainability.

What is a Dividend Aristocrat?

A Dividend Aristocrat is an S& -P 500 company that has increased it’s dividend payout for at least 25 consecutive years, demonstrating a strong commitment to shareholder returns.

How do dividends affect stock prices?

Stock prices typically drop by the amount of the dividend on the ex-dividend date. However, over the long term, companies with consistent dividend growth often see share price appreciation.

Are high-yield dividend stocks always better?

Not necessarily. While high yields can be attractive, they may also indicate higher risk or unsustainable payouts.

It’s important to consider the company’s overall financial health and dividend sustainability.

What is the dividend payout ratio?

The dividend payout ratio is the percentage of a company’s earnings paid out as dividends. A lower ratio generally shows more sustainable dividends, but this can vary by industry.

How do I calculate dividend yield?

Dividend yield is calculated by dividing the annual dividend per share by the current stock price. For example, if a stock pays $2 in annual dividends and trades at $50, the yield is 4%.

Can I live off dividend income?

Living off dividend income is possible with a large enough portfolio and careful stock selection. However, it needs significant capital and a well-diversified portfolio to generate enough income while managing risk.

Key Takeaways:

1. Use Empower’s dividend screener to filter stocks based on yield, growth, and other key metrics for a customized list of potential investments.
2. Explore Dividend Aristocrats and Kings for consistent dividend growers with proven track records of weathering economic cycles.
3. Leverage Empower’s dividend calendar for timing investments, managing cash flow, and identifying seasonal dividend patterns.
4. Consider dividend ETFs and mutual funds for diversified exposure to dividend stocks, using Empower’s tools to compare expense ratios, yields, and strategies.
5. Conduct thorough analysis of person stocks using Empower’s comprehensive data, focusing on dividend history, payout ratios, earnings growth, and industry trends.
6. Implement and track dividend reinvestment strategies to maximize long-term returns, using Empower’s portfolio analysis tools to watch the impact of compounding.