All of us, as Australian investors, have a soft spot for Australian dividends stocks. For many of us, the best Australian dividend stocks are more exciting than the excitement of seeing a company you own grow in the market.

As a result, if you’re more of a dividend investor than a growth investor, your investment portfolio will be quite different from the latter. The best Australian dividend stocks that consistently pay out may not always be the best investments for long-term capital gains, and the reverse is also true.

That means you must invest wisely and choose just the best Australian dividend stocks to ensure that you get the income that you want from your investments. How can this be done?

Yield isn’t the only factor to consider when selecting the best Australian dividend stocks. Here are seven short steps to get you started.

Companies With a Mid- to Large-Cap Value

The best Australian dividend stocks tend to be big, well-established corporations with steady sales, earnings, and cash flow. These businesses have minimal room for expansion. Most of these firms’ profits may be given to shareholders since expansion has slowed down.

However, a smaller, high-growth firm needs more cash and resources to build and expand its operation, leaving fewer funds to pay shareholders.

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50% or More Payout Ratio

When the best Australian dividend stocks companies have reached a steady size and no longer need to expand rapidly, the bulk of its income should be distributed to shareholders. Look for a firm that pays out at least 50% of its earnings.

If a company’s payout ratio is low, you would want to consider why it is hoarding its funds. The bulk of earnings should be distributed to shareholders unless there is a compelling reason to do otherwise or a strategy to achieve extraordinary returns for shareholders.

Long History of Paying Out

The best Australian dividend stocks should have a lengthy and steady history of consistently/increasing payments to shareholders. Inconsistent payments are of little use to shareholders if the firm is big and profitable and has money to give.

Check to verify whether a company’s payouts have increased steadily over the last five to ten years. This demonstrates that as the firm gets more profitable, the management is likewise eager to share the rewards of its hard work with its investors.

The Principles of the Business Are Sound

A company’s fundamentals are often overlooked by investors. For them, payouts are more important than anything else. This is erroneous and must be corrected. A company’s entire health is just as crucial as its yield when determining whether it is the best Australian dividend stocks or not.

A company’s distribution cannot be sustained in the long run if its fundamentals are worsening, such as declining sales, profitability, cash flow, and so on. Profitability is inversely proportional to funds paid out.

When investors recognise that a company’s sales and earnings are decreasing, its stock price will eventually decline. Any gains you may have made in the beginning will be wiped out by this decrease in value, putting you right back where you started. As a result, be sure that the best Australian dividend stocks company you want to invest in has a long-term future.

The Company’s Free Cash Flow Is Constant

Ultimately, the best Australian dividend stocks company must have actual cash (not simply earnings) to be capable of paying to the shareholders. Even if a corporation is successful but seems to have negative or unpredictable cash flow, it will have problems paying steadily.

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A smaller firm that is looking to develop can have negative cash flow as it increases its operations. But a big, stable firm that dominates its sector should be creating substantial sums of cash flow year in and year out.