If you're new to sharemarket investing, it can be tough to know what to look for when you're trying to identify good dividend stocks.
Picking a company with strong cash flow, low debt levels, recurring revenue and big profit margins, is obviously a great place to start.
Iron ore companies, on the other hand, such as Rio Tinto Limited (ASX: RIO), do not make good dividend stocks.
Their projects usually cost billions of dollars to get off the ground and they are also entirely dependent on market prices to remain profitable.
Market prices for raw commodities are dependent upon a balance in supply and demand and are thus often cyclical.
For the dividend-hungry investor, this means cash distributions from mining stocks are not always reliable.
Although Rio Tinto is slightly diversified and has a superior cost advantage over many of its local and international rivals, it's not a stock I'd buy for income.
Two dividend stocks I'd buy first
If I were seeking income from the sharemarket, I'd buy these two stocks first…
- Cash Converters International Ltd (ASX: CCV) is Australia's largest pawnbroker and a leader in the payday loans market. In addition to a defensive earnings base and forecast 5.3% fully franked dividend yield, investors could also look to buy Cash Converters' shares for modest long-term growth potential.
- Credit Corp Group Limited (ASX: CCV) is Australia's leading publicly-listed receivables management company (i.e. debt collector) which recently expanded into lending services and the giant debt collection market of the USA. So long as the company can continue to grow its purchased debt ledger portfolio, its 3.5% fully franked dividend appears sustainable.
