A Beginners Guide to Stocks that Pay Dividends

stock dividends

In today’s unpredictable investment climate, a lot of people are looking for something that will enable them to make money without the all-consuming risk associated with so many investments. Dividend stocks are preferred by many individuals both young and old due to their low risk premise as well as their propensity to compound over time. Read on to find out more about dividend stocks and how you can get in on the action.

Dividend stocks are made possible by profitable companies that reinvest their profit into paying company shareholders a certain amount of money on a regular basis. This makes dividend stocks a great idea for people in their twenties who would like a form of investment that pays them on a regular basis or if you’re looking to retire and want to have a steady income stream in your golden years.

Companies pay out dividends on a quarterly basis. This is mostly because companies announce their profit results on a quarterly cycle, or every three months. In order to get your share of the cake, you must be a shareholder and abide to the company’s regulations. In addition, companies must hold board meetings to decide on the amount of dividend stock to be paid as well as record minutes of the meeting in paper. When you get paid, you usually receive a dividend voucher which may be paper or an electronic note.

For your dividend voucher to be valid, it will need to have the following information:

  • The name of the company
  • The date
  • The director’s signature
  • Your name and address
  • Total net dividend
  • Number of shares you own as a shareholder
  • Amount of tax credit

According to the U.S Securities and Exchange Commission, companies looking to pay out dividends should announce a date they would like to do so, also called a declaration date. In order for you to qualify for the payout, you will need to have purchased shares in the stock before this declaration date.

When it comes to payment, you may decide to receive a cash amount or reinvest the amount back into the account. While a lump sum cash amount may seem lucrative, you may want to think about putting the money back into the company since it will compound over a set period of time.

If you are thinking of purchasing dividends, consider researching your ideal company to make sure that they have a good track record. You may also want to stick to reliable firms that have been there for a long time since you’ll be assured of a regular and decent return on your investment. You may also want to consider using online screeners which do a good job at aggregating vital dividend-related indexes such as industry, market cap, payout, price, dividend yield, frequency and history. All these details can help you paint a good picture of where to invest your money.

As will all investments, consider diversifying your dividends to protect yourself against any volatility that may occur in the future. Here’s to your success!