Dividend-paying stocks are some of the best stocks to invest in now because they’re proven winners that meet these key guidelines.

You have to learn a lot of things to become a successful investor, and few people learn them all in any logical progression. Instead, most of us move from one subject of interest to another, with a lot of zigs and zags in between.

That’s why some investors go through a phase when they know just enough about a particular investment to be a danger to themselves and others. Today we’re looking at the qualities of the best stocks to invest in today and in the future.

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Take a broad view when looking for the best stocks to invest in now

When we’re looking for the best investments to recommend in our newsletters and investment services, we start by putting all the important information we know about a company into perspective.

But things are never entirely simple. Your stock pick’s latest earnings may reflect unusually favourable or unfavourable conditions. This can make the company look safer or riskier than it really is. In addition, the company may put the funds it borrows to immediate profitable use, increasing its earnings and its ability to pay interest. It may plan to sell assets to reduce debt, or cut costs to increase earnings.

In the end, there are many ways to try to put the facts about a company into perspective. None are perfect, since all involve a mental balancing act between high and low estimates, history and the future, and faith versus skepticism.

The best stocks to invest in now have consistently paid dividends for many years

When you pick the best income stocks, you are, for the most part, investing in the safest and most secure companies. That’s in large part because of the dividends that the best income stocks pay. Dividends, after all, are much more stable than earnings projections. What’s more, dividends are impossible to fake; either the company has the cash to pay dividends or it doesn’t.

However, it’s important to remember that not all income stocks are created equal.

Our rating system for selecting the best stocks to invest in now

Every time we recommend a stock in one of our investment newsletters, we display the results of our TSI Network stock rating system (Highest Quality, Above Average, Average, Extra Risk, Speculative and Start-up) next to that stock.

We award these ratings based on a point system. Here are the key factors that make up our stock rating system.

1. One point for offering products or services that benefit from habitual behaviour
2. One point for the ability to profit from secular trends, or two points for the ability to profit from two or more secular trends
3. One point for industry prominence—two points for industry dominance
4. One point for freedom from business cycle
5. One point for an attractive balance sheet, with adequate equity and manageable debt
6. One point for a long-term record of profit
7. One point for a long-term record of dividends
8. One point for Canada-wide or U.S.-wide operations, or two points for multinational operations
9. One point for being able to serve all shareholders

Unlike computerized risk assessments, our ratings demand many judgment calls. But we find this system gives us a deep-seated measure that goes to the heart of a company’s staying power, and yields few unfortunate surprises.

When you find the best stocks to invest in now, it’s important to hold them properly

One of the costliest mistakes you can make as an investor is to sell your best stocks too soon. This mistake comes in a couple main varieties:

● Routinely re-balancing your portfolio—that is, selling stocks you own that have gone up, and using the proceeds to buy more of stocks that have gone down.
● Selling your best stock selections for small gains—taking a 25% or 50% profit on a stock when it’s just starting out on a rise that could ultimately produce a 250% or 500% gain.

Canadian dividend stocks are an important contributor to your long-term gains, and dividend-paying stocks tend to expose you to less risk than non-dividend-payers. That’s why the majority of your stocks should be dividend-payers at all times. As you get older and closer to retirement, you should raise the proportion of dividend-paying stocks in your portfolio, to cut risk and improve the stability of your investment results.

Have you had stocks that didn’t pay a dividend do much better than stocks that did?

What do you look for in stocks that don’t pay a dividend?