Dividend.com was founded to make dividend investing easier for long-term and income-seeking investors. Much of our dividend research is compiled in our proprietary rating system, known as DARS™ (Dividend Advantage Rating System). Below is a detailed look at how we rate dividend stocks.
DARS™ Rating Criteria
rating is comprised of the following five factors:
The relative strength of a dividend stock indicates whether the stock is uptrending or not. The major determining factor in this rating is whether the stock is trading close to its 52-week-high.
Overall Yield Attractiveness
If a stock’s yield is above or near the market average then it will be rated higher within this parameter. High dividend yields (usually over 10%) should be considered extremely risky, while low dividend yields (1% or less) are simply not very beneficial to long-term investors.
A stock’s dividend reliability is determined by a healthy payout ratio that is higher than other stocks. A company that pays out close to half its earnings as dividends and retains the other half of earnings has ample room to grow its business and pay out more dividends in the future.
A stock’s Dividend Uptrend rating is dependent on the company’s price-to-earnings (P/E) ratio to evaluate whether or not a stock’s dividend is likely to trend upward. If a stock is valued near, or slightly below the market average, research has shown that the market expects the stock’s dividend to increase.
A stock’s Earnings Growth rating evaluates a company’s expected EPS
for the current financial year and compares it to next financial year’s expected EPS
. Stocks with single-digit growth estimates will have a higher rating than others, as our research has shown that well-established dividend-paying companies have modest earnings growth estimates.
How to Interpret Dividend.com DARS™ Ratings
Each dividend-paying stock receives a rating of one to five stars for each of the five DARS™ factors outlined above. Stocks rated by Dividend.com all fall into one of four categories, based on their overall DARS™ Rating, which is an average of the five factors:
Highly Recommended (4.6 to 5)
A Highly Recommended dividend stock is considered an outstanding investment. Only stocks achieving DARS™ Ratings of 4.6 or above qualify for this prestigious distinction.
Recommended (3.6 to 4.5)
A Recommended dividend stock is considered a good dividend-paying stock to purchase at current levels. Only stocks achieving DARS™ Ratings of 3.6 to 4.5 stars qualify for this distinction.
Neutral (2.6 to 3.5)
A Neutral rating means a stock is considered an average investment at current levels. Stocks with DARS™ Ratings of 2.6 to 3.5 stars qualify for this grouping.
Avoid for Now (0.0 to 2.5)
An Avoid rating means a stock is not investable at the current time. Stocks with DARS™ Ratings lower than 2.5 stars are given this dubious distinction.