How to Invest in High Dividend Paying Stocks

Dividends, or payments made by a company to its stock holders, are one of the ways you can make money in stocks. (The other way is for the price of the stock to go up between the time that you buy and sell it.) Most stocks that offer high dividend rates are large, established companies with a steady cash flow. By investing in good quality stocks that also offer high dividend yields, you can potentially make extra money from your investments.

Difficulty: Moderate

Instructions

Things You'll Need:

• Computer with online access
• Public library (optional)
• Discount or stock broker account

1. Search the web for lists of high dividend stocks on financial websites, or use a stock research company such as Value Line (see Resources below). You may be able to access stock research for free at the local library.

2. Use a website with searchable stock information, such as the one in the Resource section at the end of this article, to find stocks that pay high dividends. In the dividend yield box, select the percentage dividend yield that you would like.

3. Research the stocks with high dividend yields carefully. Remember that dividend yield is just one factor in picking stocks that make sound investments.

4. Decide how much money you want to invest, and how many stocks you want to buy. Buying several stocks can help diversify your portfolio, but it can also cost more in transaction fees. If you want to own many stocks, you may want to invest in a mutual fund that specializes in stocks with high dividend yields, or in stocks whose dividends are increasing.

5. Buy shares of the high dividend stocks, or mutual fund, through an online discount broker or regular stock broker. You may be given the option of automatically reinvesting the dividends in the stock, or transferring them to a money market or other account.

Tips & Warnings

• Be sure to consider the tax consequences of automatically reinvesting dividends, since reinvested dividends generally count as purchases, which can make it more difficult to compute your cost basis in the stock. You may also be subject to wash-sale rules if you sell the stock at a loss shortly after reinvesting dividends. In some retirement accounts that grow tax-free, you may not have to worry about the tax consequences of automatically reinvesting dividends.
• Research stocks or mutual funds carefully before investing. Dividend yields are not guaranteed returns and may be changed at any time. Money invested in stocks and mutual funds is not federally insured, like a bank account.

Resources

• Here is a free stock screening tool you can use to find high dividend yields.
• Value Line for stock research.