We take many different factors into account before we award a stock one of our Successful Investor Ratings (Highest Quality, Above Average, Average and Extra Risk).

You’ll find our ratings displayed next to every stock we recommend in our newsletters — including our flagship publication, The Successful Investor. They’re designed to help you quickly and easily identify companies that have the ability to survive a business setback and go on to greater success when conditions improve.

Here are three factors we take into consideration before awarding a rating. We think they can help you improve your returns and lower your risk when you invest in the stock market:

1. A long-term record of dividends: We continue to recommend that you hold the bulk of your portfolio in well-established, dividend paying companies. That’s because a dividend-paying company with a long-term record of dividends provides a measure of safety. Dividends, after all, are much more stable than earnings projections. More important, dividends are impossible to fake — either the company has the cash to pay dividends or it doesn’t.

A couple of decades ago, you could assume that dividends would contribute up to a third of your long-term investment returns, without even considering the tax-cutting effects of the dividend tax credit. Earlier in this decade, dividend yields were generally too low to provide a third of investment returns. But now that yields have moved up, it’s realistic to assume they will once again contribute as much as a third of your total return.

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2. Canada-wide or multinational operations: One way to cut your risk when you invest in the stock market is to look for companies with operations in different provinces or countries. That lets these firms benefit from a recovering global or national economy, as well as a return to prosperity in their home markets. They also give your portfolio valuable geographic and, in the case of multinationals, currency diversification.

3. Products or services that profit from habitual behaviour: These are firms that sell products that consumers must buy, no matter what the economy is doing. These companies can add stability to your portfolio. Food producers, such as Canada Bread (symbol CBY on Toronto), a stock we cover in The Successful Investor, are good examples of these types of firms.

Outside of the consumer sector, we like to see companies that benefit from steady revenue streams from high-quality assets, long-term contracts or other reliable sources. For instance, computer-outsourcing firm CGI Group (symbol GIB.A on Toronto) typically signs contracts with its clients that last 5 to 10 years.

You can get our latest updates on issues that affect your investments, plus buy/sell/hold advice on stocks you may be considering buying (or selling) in our Successful Investor newsletter. Click here to learn how you can get one month free when you subscribe today.