Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific advice and insights, such as how we pick our top stocks. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “Here are 5 more ways in which our exclusive ratings system helps investors make stock selections with a much better chance of success.”

A week ago in Part 1 of this Investor Toolkit, we examined 4 of the 9 factors that we use to determine our TSI Network ratings: Highest Quality, Above Average, Average, Extra Risk, Speculative and Start-up. (View it here: Make your best stock picks using our ratings system: Part 1.) These ratings accompany every stock we recommend in our investment newsletters.

We use a point system to award our ratings, as I explained last week. This week, we look at the 5 remaining factors we use to assess risk and build a profile of top stocks.

5. One point for a long-term record of profit. A company that makes money just about every year will survive a lot longer than one that makes money sporadically, if at all.

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6. One point for a long-term record of dividends. A steady or rising dividend provides a sign of safety. Dividends, after all, are impossible to fake—either the company has the cash to pay dividends, or it doesn’t. Failing or fraudulent companies hardly ever pay dividends.
   
   Two examples of companies with a long history of raising their dividends are Fortis Inc. (symbol FTS on Toronto), a stock we analyze in our flagship advisory, The Successful Investor, and McGraw-Hill (symbol MHP on New York), which we analyze in our newsletter on U.S. stocks, Wall Street Stock Forecaster.

   Fortis is the main supplier of electrical power in Newfoundland and Prince Edward Island. It also operates power plants in the U.S., Belize and the Cayman Islands, and has other businesses across Canada.

   McGraw-Hill is splitting into two separate companies: McGraw-Hill Markets, which will sell a variety of financial-information products and McGraw-Hill Education, which will publish textbooks for schools and colleges.

   Fortis has raised its dividend 40 consecutive years. Its annual rate of $1.24 a share yields 3.6%. McGraw-Hill raised its dividend for 39 consecutive years and paid a special dividend of $2.50 in December 2012. Its annual rate of $1.02 yields 1.9%.

7. One point for an attractive balance sheet, with adequate equity and manageable debt. When bad times hit, debt-heavy companies go broke first.
8. One point for being able to serve all shareholders. The best stocks in this area are free of heavy-handed government regulation, free of too much dependence on a single supplier and free from abuse by insiders.
9. One point for Canada-wide operations, or two points for multinational operations. Companies that are confined to one geographical area are inherently more speculative than those whose operations are more spread out.

Adding these five factors to the four we detailed a week ago in Part 1 of this Investor Toolkit, our ratings system lets you assess the most important measure of risk—a company’s ability to survive a business setback and go on to greater success when conditions improve.

COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members

When you consider buying a stock what benchmarks do you look at to decide if it is too risky? Is there one factor above all others that has served as a reliable indicator that a stock should be avoided? Let us know what you think.