3 Dividend Investing Tips That Could Earn You Thousands

Seriously, thousands of dollars. Who wants to leave that kind of money on the table?

Dividend investing isn’t sexy. It takes a commitment to the slow and steady process of buying well-known companies and letting those quarterly payments compound year by year. But even devoted income investors can leave thousands of dollars on the table when they forget about the three strategies listed below.

If you think you have what it takes to get rich the right way — and by that, I mean the “Get rich slowly” approach — then don’t ignore these tips.

1. Aim for Dividend Aristocrats with payout ratios under 75%

There are thousands of dividend-paying stocks out there for you to buy. One easy way to winnow down the list is to focus on Dividend Aristocrats. To make this select group, a company needs to have:

  • Paid a dividend for at least 25 consecutive years.
  • Increased said dividend at least once every year during that time frame.

But that alone isn’t enough. To get the very best Dividend Aristocrats, I suggest looking for companies that use less than 75% of their free cash flow (FCF) to pay out their dividends. FCF measures the amount of money a company brings in during a year, minus capital expenditures.

At the end of the day, it is from FCF that dividends are paid. If a company isn’t using more than 75% of FCF to pay its dividend, it has wiggle room to maintain the dividend in tough times and the potential to continue its increases during good times.

AbbVie (NYSE:ABBV) is the perfect example of such a stock. It currently yields 3.6%, and has grown its dividend by 13% per year since being spun out of Abbott Labs in 2012. Here’s an easy visual for how to figure its payout ratio from FCF, using 2015 FCF numbers on Yahoo! Finance.

Screen Shot


Do the math and you’ll see that AbbVie used just 47% of its FCF to pay its dividend in 2015 — making it an ideal candidate for a dividend lover’s portfolio.

2. Don’t forget about REITs and MLPs

But you don’t have to limit yourself to just Dividend Aristocrats. There are two classes of companies that are designed for the specific purpose of paying out hefty dividends to investors.

Abbreviation Full Name Who It Applies to Rules It Must Follow
REIT Real estate investment trust Companies that own or finance land that produces regular income streams Must pay out 90% of taxable income to shareholders
MLP Master limited partnership Companies that are focused on extracting natural resources Though not a rule, these companies typically aim to use 87% or less of cash flow on dividends


There are a number of characteristics to look for in a successful REIT. Of course, it’s crucial to have an understanding of the underlying properties that a REIT owns, and evaluate if you think the income from those properties will continue to grow or not.

For instance, if a REIT owns mall property, it would give me pause — as malls seem to be a dying breed of retail. If, however, a REIT owns healthcare facilities, I would be very interested. Our aging boomer population will be using these facilities more and more in the coming years.

That’s why I think HCP (NYSE:HCP), which currently yields 6.2%, is an example of a good REIT to consider investing in. The company owns senior housing, nursing, hospital, and medical office properties. Over the past 10 years, it has been able to increase its dividend by an average of 3% per year.

With MLPs, I consider the foremost metric to watch to be the coverage ratio. This is the amount of distributable cash flow (think of it as FCF for MLPs) divided by the dividend payment. In general, management teams aim for a coverage ratio of 1.15. This is the same as saying that no more than 87% of DCF should be used on the dividend. Any more and the dividend may be unsustainable.

One example of a solid MLP is Enterprise Products Partners (NYSE:EPD). The company owns thousands of miles of pipelines for both crude and natural gas transportation. Of course, the company is also beholden to energy prices, but it has performed remarkably well during the two-year plunge in commodity prices thanks in part to new projects coming online in timely fashion to maintain healthy DCF.

If you buy shares today, you get a company with a 6% dividend yield and a coverage ratio that sits at 1.3 through the first six months of 2016. In other words, only 77% of DCF was used on the dividend, which offers a fair amount of wiggle room for management.

3. Set up the DRIP in your Roth IRA

I know the abbreviations can be confusing. An IRA stands for an individual retirement account (either traditional or Roth). All you really need to know is that the dividends you are paid can be taxed if they are in a normal brokerage account. But if they are in a Roth, they’ll never be taxed.

That’s important for when you set up a DRIP — a dividend reinvestment plan. You can set this up directly with your broker. When such a plan is in place, your account will automatically take any dividends paid to you and use them to buy fractional shares of the company it came from. Because these aren’t taxed, the compounding effect can be enormous over time.

Nowhere is this more evident than an investment in Altria. The company’s share price was held down for years because of litigation fears. But that made the dividend yield much higher, allowing DRIPs to repurchase big chunks of Altria’s stock quarter after quarter.

The chart below demonstrates the difference between the 20-year return for Altria investors based just on the stock’s price change and the effect of setting up a DRIP.

MO Chart


You definitely want the returns that the orange line provides. Setting up DRIPs for all of your dividend stocks will help you get there.

Don’t stop with just the three stocks I suggested above. Use the guidelines to narrow your choices. Don’t forget about MLPs and REITs, make sure the payout ratio is below 75% for your Dividend Aristocrats, and set up that DRIP!

The $15,834 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after.  Simply click here to discover how to learn more about these strategies. 

Brian Stoffel has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

You May Also Like

Surfside luxury condo sees notable sales

Arte at Surfside is making waves. There’s, of course, the news that Ivanka Trump and Jared Kushner are renting at the 16-resident luxury condominium. And there’s the December penthouse sale

Up in the Air: A Discussion

In a dynamic region where residents are typically on the move, everyone is wondering about the health of the airline industry and the safety of airports and airplanes. Everyone is

South Florida Yachting Legend Passes

Robert “Bob” Roscioli, an icon in the South Florida marine industry, has passed away. Many recognize the name Roscioli from the widely-successful and world-renowned Roscioli Yachting Center, a full service

Four key steps

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] What a crazy time we are all experiencing. Right now, getting back to basics is most important. It is not and

Other Posts

Pandemic adds to worries about hurricane season

An above-normal 2020 Atlantic hurricane season is expected, according to forecasters with NOAA’s Climate Prediction Center, a division of the National Weather Service. The outlook predicts a 60% chance of

The difference between leading and managing

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Leadership and management are often misunderstood as one in the same. They are not. Certainly, a good leader should be able

Flattening the housing curve in a pandemic

By Josh Migdal In the classic film Groundhog Day (and yes, it is a classic), Bill Murray’s character wakes up over and over again in Punxsutawney, Pennsylvania, reliving the same

Putting Hate in its place

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Photography by Eduardo Schneider There are days, by his own admission, when the seemingly never-ending battles against hate, discrimination and extremism

Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.