LoginMy Member Benefitsarchivesresearchyour teamabout usFAQLog out
×
Share
Access Your Profit Alerts

Dividend Stocks

Guide to Investing in Dividend Stocks

Whether you’re new to investing or you’ve been in the game for a while, you’ve probably heard the advice: diversify your portfolio. It’s never a good idea to put all your eggs in one basket, especially when it comes to investing. One significant dip and you could lose a majority of your investment.  

When you’re considering what to invest in, you want to look for a variety of different kinds of investments. Dividend stocks are a very safe and secure investment type to consider adding to your portfolio. 

Dividend stocks are essentially a great way to get rich slowly.  

What Are Dividend Stocks? 

Let’s start off with the basics; what are dividend stocks? 

Dividend stocks are a type of stock you purchase from companies that pay out dividends to their stockholders. Each quarter, you receive a small payment for every share of a dividend stock you own. 

The reason dividend stocks are so powerful is because the investor receives a small amount of money, consistently, and over a long amount of time. Dividend stocks are a long-term game. As an investor in dividend stocks, you want to look for companies that have a history of success and consistently high dividend payouts. 

Why Invest In Dividend Stocks? 

The answer is simple: dividend stocks are a safe investment. 

The stock market can be volatile, meaning you’re taking a risk with your money when you invest. By investing in dividend stocks, you’re lowering that risk. 

Dividend stocks are typically those of more established companies. In contrast, younger, faster-growing companies are reinvesting investor money into the company, instead of returning it to investors in the form of dividend payouts. 

Dividend stocks, because they are part of more mature companies, tend to be less volatile than other stocks and they’re able to weather recessions and crashes with better success. 

Which Dividend Stocks Should I Buy? 

Now that you understand what a dividend stock is, you probably are wondering which dividend stocks to buy. As with every investment, there are some dividend stocks that are a better investment than others.  

How do you know which those are? There are a few important factors to look at when choosing which dividend stocks are right for you to purchase. 

Many investors’ first reaction when looking to purchase dividend stocks is to look at their yield. The yield is the ratio of the annual dividend compared to the current share price. Yield is expressed as a percentage.

While a higher yield percentage is valuable in terms of dividend stocks, it’s not the most important factor. It’s also important to assess dividend consistency and company growth over time. For example, you’ll find many companies with dividend yields above 5%. But, then there’s Johnson & Johnson, which pays a dividend yield of 2.6%. That sounds low, but when you see that the company consistently pays dividends and has increased its dividend for 54 consecutive years, you can see the wisdom of investing in lower yield, safe dividend stocks.  

Dividend stocks are intended to be slow growing and consistent, so reliability is often more important than a high yield.   

If you’re new to investments, you have an even safer option than dividend stocks. Instead of investing in dividend stocks from just one company and risking a failure, you can look for ETFs that specialize in dividend stocks. 

If you’re still learning about investing, be sure to read through our articles on Dow stocks in addition to the below articles on dividend stocks. 

Emerging Market Dividend Stocks Give Investors the Best of Both Worlds

By , Global Investing Specialist, Money Morning -

In today's market, dividend investing is the best way to achieve a decent income stream without taking on too much risk.

On the other hand, this is also true: emerging markets give investors the benefit of the world's fastest economic growth.

Investors would be wise then to combine these two strategies by buying emerging markets stocks that pay steady dividends.

In practice, this is more difficult than it ought to be - but it's not impossible.

In fact, as you'll learn later I have found numerous ways to profit from this best of both worlds strategy.

What You Need to Know About Emerging Market Dividend Stocks

Dividend-paying stocks in emerging markets have the same advantages as they do in the U.S. market.

Just like here in The States, a sizeable dividend from overseas is not only money in your pocket, it's also evidence that the management is working in your interests as a shareholder.

And by paying dividends investors can be sure that at least some of the earnings the company is generating are real and not the result of an accounting flim-flam.

If a company in a fast-growing emerging market is able to pay a decent dividend and participate in local growth, then you can anticipate very good returns indeed, since the dividend itself is likely to grow on the back of the company's rapidly increasing profits.

Of course, there are always risks in emerging market investing, but a good yield gives your holding a solidity that isn't present in companies with mere paper earnings.

But here's what you need to know...

To continue reading, please click here...

Cash-Secured Puts: Keep the Cash Flowing – Even After You've Sold the Stock

By , Contributing Writer, Money Morning -

In January, I told you how you can double or even triple your yield by selling "covered" calls on your dividend stocks.

While this is a safe and highly effective strategy, selling covered calls does have a drawback - of a sort.

If the stock you're holding rises in price before the calls you sold expire, you could be forced to sell the shares at the option's designated strike price.

This isn't likely to be a huge problem since you'll be selling your stock at a profit. The problem is that if you no longer own the stock, you won't be getting the dividend.

Fortunately, this problem has an easy solution. It's a strategy called selling "cash-secured puts."

Using cash-secured puts, you can maintain your cash flow while you're waiting to repurchase the actual stock at a price equal to or below where you just sold it.

How to Use a Cash-Secured Put to Generate Income

Here's how it works.



To continue reading, please click here...

The Best "Buy" of the New Dividend Aristocrats

By , Associate Editor, Money Morning -

If you are looking for a steady stream of safe dividends in today's troubled markets, the list of "Dividend Aristocrats" is a good place to start.

Compiled and tracked by Standard & Poor's, Dividend Aristocrats are companies that have consistently increased their dividend payouts for 25 consecutive years.

Currently, there are 51 of them, including the 10 new Dividend Aristocrats added this year.

To continue reading, please click here...

How to Safely Double Your Dividend Yield With Covered Call Options

By , Contributing Writer, Money Morning -

As it turns out, despite the summer swoon, income investors were the big winners in 2011.

While the Dow Jones Industrial Average finished the year with a gain of just 5.5%, the 100 highest-yielding stocks tracked by the Dow Jones - as measured by the iShares Dow Jones Select Dividend ETF (NYSE: DVY) - returned a market beating 11.73%.

Of course, the question today is whether or not that performance will carry on in 2012.

However, given the contentious nature of the U.S. presidential race, the ongoing turmoil in the Eurozone and the clouds hanging over the global economy, 2012 is looking like it will provide another great year for dividend investors.

The reason stems from what Martin Hutchinson, editor of the Permanent Wealth Investor, discussed last week in his look at dividend stocks.

"The problem with going for capital growth," Martin points out, "is that you very often don't get it, and then you've got nothing - the investment just sits there."

By contrast, Hutchinson added, "Dividends are easy... All you have to do is figure out which companies have genuinely solid business models that aren't going away."

Options Strategy: Boosting Your Yield With Covered Calls

What's more, if you're willing to put in a little extra time and make use of a proven strategy involving call options, you can safely double, triple, or even quadruple the amount of income you receive from your dividend-paying stocks - even if the share price does absolutely nothing.

The technique is known as "writing covered calls," and implementing the strategy is quite simple.

All you do is sell (or write) one out-of-the-money call option - i.e., one with a strike price higher than the stock's current market price - for each 100 shares of the stock you own (the underlying security).

The call is said to be "covered" because you own the underlying shares. As a result, you don't have to put up any added money or "margin" in order to make the trade.

All of the money you receive for selling the calls - the "option premium" - is yours to keep regardless of what happens to the price of the underlying stock.

This "option premium" is then added to your overall gains, boosting the yield you are set to earn from the dividend.

Here's how it works in practice:

To continue reading, please click here...

To continue reading, please click here...

How to Win Bernanke's War on Savers with a 19% Yield

By , Global Investing Specialist, Money Morning -

There is no other way to put this... With his zero interest rate policy (ZIRP), U.S. Federal Reserve Chairman Ben Bernanke has declared a virtual war on the nation's savers.

That's why savings-conscious investors have been forced out into the markets these days in search of higher yields.

Between 10-year notes offering yields under 2% and CD rates hovering near 1%, savers have been left little choice.

It is one of the reasons why high-paying dividend stocks have been in demand ever since the ZIRP crisis began.

For savvy investors looking to boost their yield, there's only one place to look...

They're called mortgage REITs, and they offer investors the chance to collect some of the highest dividend yields available today.

In fact, one of these investments is actually paying a 19% yield, right now!

That's not a typo. Double-digit yields like those really can be found if you know where to look for them.

I'll tell you more about this company in a moment. But first I'd like to explain to you what mortgage REITs are all about.

Mortgage REITs Explained

Real Estate Investment Trusts, or REITs, came into existence because of U.S. President Dwight Eisenhower's "Cigar Tax Excise Tax Extension" of 1960. Under this initially obscure tax provision, REITs can avoid corporate income tax, provided they invest in real estate-related assets and pay out at least 90% of their income in dividends to investors.

Mortgage REITs, as their name suggests, invest in residential and commercial mortgages.

Within the residential mortgage REIT category, some invest in agency-guaranteed REITs while others specialize in REITs that are not guaranteed.

Given the recent default rate on home mortgages, investors would be wise to concentrate on guaranteed agency mortgage REITs. This is due in part to Ben Bernanke's monetary policy since 2008.

Let me explain...



To continue reading, please click here...

Four Dividend Stocks to Put Money in Your Pocket

By , Contributing Writer, Money Morning -

Anxiety over the European debt crisis and distrust in the markets drove volatility in global stock markets to dizzying heights in 2011. The intense level of chaos, and record low bond yields, sent investors scrambling for stocks that deliver steady returns in the form of dividends.

Dividend stocks have long been regarded as "widow-and-orphan" stocks because they provide steady payouts and tend to fall less than others when times are tough. And when stock prices fall, dividend yields actually rise because they reflect a percentage of a stock's price.

In fact, investors seeking shelter from market volatility and economic cycles flocked to dividend stocks in 2011. And most held up much better than the Standard & Poor's 500 Index.

The top 100 highest-yielding stocks in the S&P 500 last year were up an average of 3.7%, before dividends, The Wall Street Journal reported. By comparison, the 100 lowest-yielding stocks were down 10% on average.

Meanwhile, some investors tapped into dividend yields of more than 4% -- more than double the feeble yields of 10-year Treasuries -- on the stocks of utilities, manufacturers, and telecom companies.

"The problem with going for capital growth is that you very often don't get it, and then you've got nothing - the investment just sits there," said Money Morning Global Investing Strategist and Editor of the Permanent Wealth Investor Martin Hutchinson. "Dividends are easy - you can drop them on your foot, as it were. All you have to do is figure out which companies are run by sharpies - and are paying dividends out of capital - and which companies have genuinely solid business models that aren't going away."

Still, buying dividend stocks can be tricky. Individual stocks are inherently risky because they are confined to one sector of the economy. As such, they tend to rise and fall along with the rest of their industry peers.

Many investors are solving that problem by turning to dividend exchange-traded funds (ETFs).

ETFs allow investors to capture income from a cross section of companies, without risking all of their capital on one sector. And because ETFs track broad categories of stocks rather than relying on active managers to pick securities, they provide some safeguards against loading up on the riskiest companies.

That said, here are four dividend stocks worthy of a look right now:



To continue reading, please click here...

These Four Dividend Stock ETFs Can Add Pop to Your Portfolio

By , Associate Editor, Money Morning • @DavidGZeiler -

Investors who like dividend-paying stocks should love exchange-traded funds (ETFs) that focus on dividend stocks - they provide the same benefits but with diluted risks.

With the stock markets gyrating and traditionally "safe haven" investments like U.S. Treasuries offering historically low yields, dividend stocks offer the lure of a reliable income stream.

"Dividends provide you with an income far better than you can get in bonds and with considerable protection against a down market," said Martin Hutchinson, Money Morning's Global Investing Strategist.

Yet dividend stock ETFs also provide some measure of protection from a financial crisis at an individual company.

"Dividend ETFs mitigate the risk a company might commit the ultimate sin: suspend or cut a dividend," Matt Krantz writes for USA Today. "By owning one ETF, which owns shares of hundreds of dividend-paying stocks, if just one company halts its dividend, the impact to the investor will be relatively small."

ETFs own stocks like mutual funds, but are traded on the markets in "units" just like stocks. The units can be created (requiring the fund to buy more shares of the underlying stocks) or destroyed (requiring the fund to sell shares) to accommodate investor demand.

The Power of Dividends

Many investors underestimate the power of dividends. Hutchinson pointed to a study by Yale economist Robert Shiller that showed that dividends accounted for 67% of the average real return on common stocks from 1889 to 1998.

"While stock prices have been plunging, dividend payments are rising," Hutchinson said. "Through Aug. 31, 243 companies in the Standard and Poor's 500 Index increased or initiated a dividend payment. In fact, dividend payments are expected to end 2011 up 18% from 2010."

Companies that manage ETF funds have created an increasing number of dividend stock ETFs to serve investors hungry for ways to add more dividend income to their portfolios.

The Four Best Dividend Stock ETFs

Standard & Poor's Capital IQ Equity Research recently analyzed 1,100 ETFs to see which of the funds that focused on dividends had the best yields and excelled in several other criteria, including performance, risk, credit rating and volatility (based on its standard deviation).

That narrowed the list to 13 funds, of which most were general funds. Four of those ETFs, however, are specifically focused on dividend stocks.

They are:



To continue reading, please click here...

Dividend Stocks: How To Profit From The World's Best Investment Protection

By , Global Investing Specialist, Money Morning -

Do you know what the ultimate investment protection is?

It's not gold, and it's certainly not Treasuries.

It's dividend stocks.

Companies that pay consistent dividends are in better fiscal shape than the U.S. government, and the payouts significantly outpace those of Treasuries. The advantage over gold of course is that the yellow metal yields nothing - it's simply a store of value.

And yet dividend stocks also protect against inflation, since profits for the companies behind them tend to rise alongside prices.

To understand the advantages dividends can provide an investor during a down market, just look at the implosion of the dot-com bubble in 2000.

Read More…

Investment Protection: These Dividend Stocks Yield Twice as Much as Treasuries

By , Global Investing Specialist, Money Morning -

Do you know what the ultimate investment protection is?

It's not gold, and it's certainly not Treasuries.

It's dividend stocks.

Companies that pay consistent dividends are in better fiscal shape than the U.S. government and the payouts significantly outpace those of Treasuries. The advantage over gold of course is that the yellow metal yields nothing - it's simply a store of value.

And yet dividend stocks also protect against inflation, since profits for the companies behind them tend to rise alongside prices.

To understand the advantages dividends can provide an investor during a down market, just look at the implosion of the dot-com bubble in 2000.

According to Morningstar research, the Standard & Poor's 500 Index lost 9%, while dividend-oriented mutual funds - including high-yielding stocks in the financial-services, mutual-fund and real-estate sectors - gained anywhere from 10% to 30%.

And I shouldn't need to remind you that dividends account for the majority of the stock market's returns.

A study by Yale economist Robert Shiller showed that in the 109 years from 1889 to 1998, the average real return on common stocks was 7%, of which 4.7% was represented by dividends.

While stock prices have been plunging, dividend payments are rising. Through Aug. 31, 243 companies in the Standard and Poor's 500 Index increased or initiated a dividend payment. In fact, dividend payments are expected to end 2011 up 18% from 2010.

That's the case for dividend stocks. Now I'm going to give you some potent investment ideas to help you get on board.

Investing in Dividend Stocks

Generally speaking, there generally are two types of dividend stocks. There are large blue chips, which have a reliable but modest payout. And then there are the obscure companies, which have a higher yield but less safety.

In the first set you'll find companies like

to continue reading, please click here...

Today's Markets
DJIA 50.45 (0.17%) 29,348.10
NASDAQ 31.81 (0.34%) 9,388.94
S&P 12.81 (0.39%) 3,329.62