I would like to be able to identify the best dividend stock in our portfolio. The best performing stocks will be good candidates for increasing our holdings, and the worst performing stocks will get a closer look at their inclusion in our dividend portfolio. Tracking and analyzing our investments makes us better investors.

The First Question: How Do I Determine the Best Dividend Stock?

Obviously, the purpose of any investment is to maximize its return over time. Therefore, the formula for determining the best dividend stock should account for capital gain and dividends. Usually we do not include capital gain in this assessment because it may fluctuate within a short period of time, and we may need to sell the capital asset to realize the gain. To determine how well a stock does, I will calculate the capital gain. Capital gain also shows market appreciation of the asset at the time of evaluation. The period of time that we hold onto the asset is also important; this is why I will add it into formula used to identify our best dividend stock. By summarizing capital gain and dividends and dividing that figure by time (in years) that we have been holding the asset, we will determine the annual profit of the dividend stock:

Annual Profit = (Capital Gain + Dividends) / Time of Holding in Years

The stock in our dividend portfolio with the highest annual profit will be the best dividend stock among our holdings.

Our main purpose in investing in companies that pay dividends is to receive cash (dividends) every one or three months; therefore, the formula above gives more weight to dividends. For calculating annual profit, we will use the last received dividend for the whole period of asset holding. Because of dividends hikes during the asset holding period, the last dividend received usually will be higher than the dividend in the first period of the asset holding.

Our Best Dividend Stock

Following the calculation above, Domino’s Pizza, Inc. (DPZ) yielded a 57% annual profit. This is the highest profit among our holdings. We have been holding DPZ for a bit less than a year. Our DPZ dividend yield is 1.19%, which is $144 annually. The dividend yield, together with a spectacular capital gain of 56% within the holding period for this asset, puts this investment in first place among our holdings.

There is a Domino’s Pizza shop in our neighbourhood, and we are happy customers. We discussed all of our decisions regarding buying shares of Domino’s with our kids, trying to get them involved in the process. For now, our older son, who is 11 years of age, thinks his dad is doing right in investing for the long term.

Our Worst Dividend Stock

We have owned AT&T (T) stock since January 2015. Our dividend yield is 4.7%, which comes to $285.60 annually. These dividends have compensated for part of our capital losses, but as of today our losses with this investment are 9% annually. AT&T is the second-largest US wireless carrier, serving more than 100 million subscribers, including about 65 million postpaid phone subscribers. Market capitalization is more than $230 billion, and the company has plenty of free cash. Capital loss is not a sufficient reason for us to sell our position, however. A reduction in revenue or a cut in dividends might be a trigger for a position sell. Until then, and hopefully forever, we hold and DRIP our position in AT&T.

Capital Gain and Mr. Market

Sometimes Mr. Market sets a price on an equity that does not exactly follow the company’s fundamentals but rather is based on the players’ mood. Because Mr. Market defines the equity price, it might be offset from the actual equity price. If there are no fundamental changes in company valuations—such as revenue, earnings per share, and dividends—we continue holding onto that equity.

Here is how we select our dividend-paying stocks Simple Steps To Select Dividend Stocks.

“It is not necessary to do extraordinary things to get extraordinary results.” — Warren Buffett