Waste Management, Inc. (WM), Ford Motor Company (F): How to Find the Best Dividend Stocks

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While Waste Management, Inc. (NYSE:WM)’s payout ratio of 81.7% is fairly typical for a high-yielding dividend stock, Ford’s payout ratio of just 17.1% is extremely low. In fact, Ford’s payout ratio is even lower than Apple’s, a stock I recently dubbed one of the best dividend stocks in the stock market.

Dividend yield
Waste Management’s dividend yield is unquestionably substantial, at 3.6%. But Ford’s isn’t too bad either, at 2.57% — especially taking into account that Ford Motor Company (NYSE:F) has considerable wiggle room to boost its dividend in the future.

What would Warren Buffett do?
Asking that question will get you the easy answer. Waste Management, Inc. (NYSE:WM) is clearly the better dividend stock between these two if you make economic moat a prerequisite in this analysis. Warren Buffett is often known to avoid companies entirely if they don’t have a clear durable competitive advantage. In fact, he has particularly voiced his concern about the highly competitive auto industry: “It’s very hard to pick — to pick winners. I don’t — there will be a big auto industry five, 10, 20 years from now that will be selling lots of cars, I just don’t know whose cars they’re going to be.”

If you don’t use moats as a requirement, the choice gets a big more intricate. If Ford Motor Company (NYSE:F)’s free cash flow levels pick up, the company could substantially boost its already meaningful dividend. Fortunately, however, investors don’t have to choose between both of these stocks. One smart way to allocate would be to take a large position in the wide moat Waste Management, Inc. (NYSE:WM), and a small position in Ford, to potentially capture the upside to dividends if the company does eventually boost its payout more substantially.

There’s no formulaic way to finding the best dividend stocks, but carefully looking at the areas outlined in this analysis will get you closer to the bullseye.

The article How to Find the Best Dividend Stocks originally appeared on Fool.com and is written by Daniel Sparks.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Ford, Republic Services, and Waste Management. The Motley Fool owns shares of Ford and Waste Management.

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