Investing in Dividend Stocks for Income
Dividend stocks can be a great strategy for investors looking to produce regular income. It takes a stock from an appreciating asset to a cash flow asset because you are getting paid to hold it. Those payments are called dividends.
Dividend paying stocks distribute a % of the company’s earnings to shareholders on a regular basis. Most dividend stocks pay investors a set amount each quarter, and the top companies tend to increase their payouts over time, so investors can build a cash stream. If the shareholder is not trying to produce income from the stock that can also choose to reinvest dividends.
Building a nice portfolio of dividend stocks takes time and effort, making it more complex than investing through a dividend ETF. However, the ability to pick and choose your own dividend stocks, you have the ability to personalize a portfolio of potentially higher dividends rather than the basket stocks of the exchange-traded funds.
Before buying a dividend stock, you’ll absolutely need to analyze the company, the sector and industry. The safety of the dividend has to be evaluated and then determine how much to buy to produce your desired income stream from that stock.
You still need diversification if you’re buying individual stocks, so you’ll have to decide what % of your portfolio will go into each of the stocks. If you’re buying 25 stocks, you could put 4% of your total in each. Remember when you are evaluating the company and the safety of the dividend, if the stock is riskier, buy less of it and put more of your money toward safer choices.
The No. 1 point of emphasis in buying a dividend stock is the actual safety of its dividend. When buying a dividend stock, it’s imperative that you are not just focusing only on the highest dividend yields. A high yield can be a sign that other investors are skeptical of the company’s ability to pay the dividend and that it may be in danger. As the share price declines, that lower share price pushes the yield higher. If you buy a dividend stock that puts loses value and has the dividend cut, it is like two losses.
Here is are a few examples of dividend stocks and how much you would need to invest to produce $1000 per year in dividend income. The share prices are as of August 20th 2019.