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The stock market offers thousands of opportunities every moment it’s open.
It’s easy to get overwhelmed, or to start chasing hot stocks or sectors.
Let’s teach you how to quickly figure out which dividend growth stocks deserve your attention.
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Look At The Company Profile
The first step isn’t about profits, prices, or dividends.
It’s about understanding the business.
If you can’t explain what a company does, how it makes money, and why its customers love it in one sentence, move on.
Warren Buffett calls this staying inside your Circle of Competence.
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This is important. You have to understand how the business makes money in order to:
Understand its competitive advantage
Understand the financial statements
Know if you should sell or hold when the price drops
You should be looking for simple, durable businesses.
Rollins is a great example:
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Look At The Profitability
Next, you want to make sure the business is profitable.
High margins mean the business has pricing power.
A company that can charge what it wants despite competition is a company built on something durable.
High margins also act as a cushion to protect the company during inflationary periods or economic downturns.
A good rule of thumb is to look for:
Gross Margin: > 40%
Net Margin: > 10%
You also want to see that the margins are stable or increasing over time.
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Look At Capital Allocation
Management’s most important job is capital allocation.
A management team that consistently generates strong returns on every dollar it invests is compounding your wealth.
One that can't is diluting it.
Return On Invested Capital or ROIC is the gold standard for measuring how efficiently a company turns capital into profit.