Some dividend investors start and end with the yield, the higher the payout the better. This is not always the case and generally there is reason why the yields are high – beware if they are sustainable. Often times it is better to start with those companies that can pay a dividend and then narrow it to those that can grow their dividends. This is where you need to do your research in determining why can the company grow its dividend?  John Heinzl (jheinzl@globeandmail.com) interviewed Dennis Mitchell of the Sprott Dividend funds to see what he looks for.

Besides growing a dividend, Mr. Mitchell likes low debt levels, high returns on invested capital, a differentiated product or service; and pricing power. Some of the companies he likes are:

Nike  over the past  years the stock is up 28% annually and has more growth headed. This is one of the larger, dominant consumer franchises.

McKesson is one of the 3 largest US drug distributors which means oligopolistic industry benefits from high barriers to entry and strong returns. The company tries to negotiate with big pharm to keep drug costs down by having bulk purchases.

Macquarie Infrastructure Corp – operates a portfolio of business including airports services, bulk petroleum and chemical storage, gas processing and wind and solar power generating facilities. The great thing is they produce steady cash flows for a very sustainable dividend.

Brookfield Infrastructure – assets on 5 continents and include ports, toll roads, utilities, railway and communications towers. The vast majority are regulated which means a very consistent and stable cash flow stream.

Visa – has gained over 33% over the past  years. The world’s largest payments processing network and as we all use less cash – we turn to credit. The new Apple and Android Pay require a credit card – VISA, MasterCard or AMEX.

Linking to dividend paying stocks, within the group are companies who stocks will increase over time as the dividends and cash flow remain consistent and growing. Build your portfolio with these types of companies and you will ensure the first rule of investing of not losing your money is maintained. As the dividend grows, the companies grows and it trades at a higher multiple which is good for you.

There are more questions than answers, till the  next time – to raising questions.