How to Invest in Stocks that Pay Dividends
Investing in stocks that pay dividends is one way to setup a recurring revenue stream that pays you back every quarter. In fact, there are some dividend paying stocks that will pay you back each month! It is very easy to identify stocks that payout dividends to their shareholders. Unfortunately, that makes it even harder to understand how to properly invest in high yield stocks as there are so many to pick from.
Just because a company chooses to payout a dividend to it's current shareholders, doesn't mean it is a sound investment. A company may decide to pay a one time dividend because of special circumstances for example, which changes the metrics and calculations used to identify dividend paying stocks.
Here are a few simple steps that can help you remove any doubts or confusion on finding stocks that pay dividends.
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Instructions
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Search for published lists of dividend paying stocks that can be leveraged as a starting point for investing. Look at lists like the S&P Dividend Aristocrats as a highly recommended resource of stocks that pay dividends. This list can then be further refined to fit with any other criteria that you may have. Try and avoid using any list of dividend paying stocks as your only source for decision making. Dividend distributions tend to lag behind the health of a company, so you need to be aware of this.
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Run a stock screen looking for stocks that pay dividends and compare it against your other lists from step #1. Make sure you look for stocks with a strong dividend yield, low P/E ratio, high projected dividend growth rate, and strong projected future earnings as well as other criteria. Using these types of criteria will help you identify a good solid list of dividend paying stocks.
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Refine your list of stocks that pay dividends by comparing your lists and identified securities from the prior two steps. Look at other resources such as memberships, fundamental and technical data, reviews written by professional financial advisers and more. While relying strictly on reviews from third party sources should not be used exclusively, it can help make decisions easier if combined with other data.
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Open an online brokerage account (if you don't already have one) as your final step to invest in stocks that pay dividends. Be sure to research out all of the features that come with any potential discount brokers to fit your investment needs. If you plan to be a dividend investor, then be sure to open an account that allows you to reinvest your dividend payments automatically. This is often referred to as a DRIP (dividend reinvestment plan) account.
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Tips & Warnings
Invest in dividend producing stocks with long term focus and sustainability. Chasing the highest dividend producing stocks is just as risky as day trading or options investing.
Investing in the highest dividend yield without looking at any financial data is a recipe for disaster.
