If you’re interested in making a new investment, consider dividend stocks. Before you start the investment process, it’s important to know what dividend stocks are and what you can expect as an investor. Read on to learn more about dividend stocks, the benefits and drawbacks, the investment process, and the high-dividend stocks you can invest in.
What Are Dividend Stocks?
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Dividend stocks are profit distributions made by a corporation that are sent to shareholders via company shares. They allow companies to reward shareholders without costing too much money in return. By offering dividend stocks, companies have the opportunity to show their financial stability while also enticing future investors. Dividend stocks also help the share price soar.
Distributions are typically made on a set schedule, though some companies may make their payments irregularly with no set schedule in mind. If they’re on a set schedule, they’re often distributed four times a year on a quarterly basis. They may also be paid out semi-annually or once a year.
Pros and Cons of Investing In Dividend Stocks
Before you decide if dividend stocks are a worthwhile investment, it’s important to know their benefits and disadvantages. Understanding both can help you make a more informed decision about this investment. Here are the advantages that come with investing in dividend stocks:
- Reliable stream of income.
- Dividend reinvestment.
- Capital appreciation.
- Tax advantages.
Though there are several advantages, dividend stocks also come with some drawbacks. Consider the following disadvantages that come from this investment:
- Greater risk compared to investing in bonds.
- Double taxation.
- Possible dividend reduction.
- Diluted earnings per share.
Different Ways to Invest In Dividend Stocks
When you invest in dividend stocks, you can do so in one of two ways. The first is through exchange-traded funds, which are investment funds or security baskets that are traded on stock exchanges. Here are the steps for investing in dividend stocks through ETFs:
- Open a brokerage account.
- Find ETFs and compare the costs of each.
- Ensure your ETF portfolio is diversified.
- Buy the ETF.
You can also invest via individual dividend stocks, which require more of a time commitment than ETFs. Here are the steps for this type of investment:
- Find quality dividend-paying stocks.
- Compare the dividend yields and the stock’s payout ratio.
- Research the company’s industry and finances to determine if the investment is worth it.
- Know how much stock you want to buy and purchase it.
High-Dividend Stocks to Invest In
There are several high-dividend stocks that provide you with regular income. Consider investing in the following high-dividend stocks:
- National Health Investors Inc.
- The Bank of Nova Scotia.
- Chevron Corp.
- Bank of Montreal.
- BCE Inc.
- The Toronto-Dominion Bank.
- Omnicom Group Inc.
- TC Energy Corp.
- Bank of Hawaii Corp.
- M&T Bank Corp.
Now that you know about dividend stocks and what to expect, you’re better equipped to determine if this is a wise investment for your future. Determine if the pros outweigh the cons, and if this type of investment works for your family, get ready to start earning a little extra cash.
As a final note, DON’T FORGET TO DO YOUR HOMEWORK!. Stocks are basically ownership units in companies, not some magic number in a computer. Their performance depends on how well people in the company are trained, organized and lead. Their performance also depends on the character of the people in the company, as well as prevailing market conditions. There are a couple of ways to check out the company. A good first step is frankly to figure out what they do, then pull their underlying balance sheet. You can also check for excessive insider selling, which is usually a red flag that management doesn’t have confidence in the financial performance of the company.