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.