I am frequently asked by Dividend Money readers how I choose my best Dividend stocks. I outlined my method in an article called How to Choose Dividend Growth Stocks, but this isn’t the only way to invest for dividends. Benjamin Graham, one of the best value investors of all time, developed a few rules that helped him consistently outperform the market.
In his 1934 book, Security Analysis, Graham established five principles by which investors can not only beat the market but pummel it. Since that time, investment houses that have incorporated his philosophies have done just this.
- Companies with low prices in relation to asset value –Microsoft has nearly $30 billion in cash.
- Companies with low prices in relation to earnings, or ones that offer generous dividend yields and low prices in relation to cash flow.
- Companies that display a systematic and significant pattern of insider purchasing.
- Companies that have recently experienced a significant decline in price.
- Companies with small market capitalizations.
Source: Motley Fool