Dividends are a payment of some of a company’s earnings to individual shareholders who own parts of the company.
Dividends are typically determined by the company’s board of directors and can be distributed monthly, quarterly or annually.
To invest in dividend stocks, investors should remember that there is likely to be a minimum investment amount. Investors purchasing stocks directly may be required to make a minimum investment between $25 and $500.
Once opened, investors can research using screening tools provided by stock brokerages and information on the Security and Exchange Commission’s website and through the stock exchange.
Next, you can do a deeper dive into each of the company’s and their financials through quantitative research methods.The goal is to identify if a company has a history of financial stability and low volatility, which will suggest how reliable it will be in paying out dividends.
A high-yielding dividend stock may look appealing. However, dividend ratios will provide more significant insights into if a stock can maintain the same performance over a long period.
Before purchasing a dividend-paying stock, investors must be aware of the ex-date.Any stock traded ex-dividend on or following this date will not receive the next dividend payout.
Using dividend stocks, investors can achieve portfolio growth through compounding.While traditional stock market gains are continually fluctuating and difficult to predict, compounding can ensure interest increases due to dividend reinvestment.
Of course, dividend stocks are a great addition to any well-balanced stock portfolio.When investors get too comfortable with the idea, they are likely to begin individual stock picking, which will leave a portfolio vulnerable to risk.