The Stock Screaming "Buy Me!"

Finding just one great dividend stock -- the stock that should be screaming "Buy me!" -- can mean an early retirement, not to mention a wealthy one.

It's out there today, and it's screaming, "Buy me!" -- but you have to be listening. Toward that end, I'd like to share two must-haves I've learned:

Must-have No. 1: Strong operational returns. The whole point of a business is to turn lead into gold -- to take capital and create even more capital. If return on equity (ROE), return on assets, and return on capital look anemic, investors' returns will likely be, too.

Must-have No. 2: A growing dividend. This signals more than just larger checks in the here-and-now. It signals a dividend-friendly board, which can mean the difference between a cash-monger and a cash-sharer as the years tick by.


There are pitfalls to watch out for in dividend investing. Don't lose your nest egg by falling through one of these trap doors:

Trap door No. 1: The dividend double-take. I remember when my friend got stood up, left holding a dozen roses in a restaurant full of expectant onlookers. You might not have expectant onlookers, but you don't want a company that ditches its dividend. Look for a payout ratio of less than 80% for most companies. Math whizzes will want to replace net income with free cash flow in the formula, something I do in finding stocks for my newsletter, too.

Trap door No. 2: Closet debt. ROE is great, and rightfully loved by investors ranging from your next-door neighbor to Warren Buffett. But companies know a dirty little trick: Load up on debt, and your ROE soars. That can be great, but don't take that check at face value. The company may have just gotten a lot riskier. Next time you see ROE spike, check to see if the debt has done the same.