There are plenty of great ways to make money off of the stock market. However, it can take a lot of time, shrewd knowledge and plenty of gumption to get your hands on regular, worthwhile income. To many people, just thinking about stocks and shares can bring on mild headaches! In this guide, however, we’re going to focus on introducing you to the world of dividend stocks without going into too much technical detail. After all, we all have to start somewhere!
An Introduction to Dividend Stocks
What are Dividend Stocks?
Let’s start at the beginning – what are dividend stocks? Dividend stocks are a form of payment made to investors in a certain company or brand. When you invest in a company, you are entitled to earn back a certain amount depending on how successful they are. This, too, will also depend on how much money you are willing to put up for investment.
Companies and firms may disperse dividends, or investor payments, in several different ways. Some of the most popular dividends are those which pay cash directly, while plenty of people prefer to receive dividends in the form of additional stock shares. This is particularly sought-after when a company is set to grow in the months and years to come. If the forecasts for a company look good, there’s every chance you’re going to want to rack up the stock for future value.
How Stock Dividends Work
Understanding how stock dividends work is all part of the process. Not all companies offer stock dividends as an option. This may be for various reasons, such as a lack of liquid cash – however, taking on stock dividends over cash alternatives may be a better way for you to profit in the long run. Stock dividend distribution is also known as dividend reinvestment. Shareholders will generally find out that they are due stock dividends through a press release or through financial market channels.
Stock dividends also carry the added benefit of being tax-free. They only take on tax once an investor sells them on. Therefore, they are seen as a fantastic long-term investment, particularly if the company or brand involved has plenty of growth in its immediate future.
How to Invest in Dividend Paying Stocks
Knowing how to invest in dividend-paying stocks long term will help you convert your physical assets into more money in the long run. You’re going to need to look for companies which are famed for financial stability. Look for bigger firms, for example – though don’t always expect the biggest names on the stock market to necessarily pay out this type of dividend. It shouldn’t be too difficult to track down companies willingly paying out this type of dividend, though it’s always a good idea to draw up a list of firms and brands you are interested in.
When it comes to physically investing in this type of stock, you will likely need to contact the company directly or use an online investment platform such as Freetrade or Robinhood. You’ll also likely need to invest a minimum amount of money to get started, though this can vary from company to company depending on what they expect from you. It’s also largely dependent on how much their shares currently cost.
Do always make sure you monitor your dividends and stocks carefully through your portfolio and/or brokerage account. It’s a fact that companies may change their dividends policies at any time. This means withdrawing them altogether, too. Vigilance is key!
What Stocks Give Dividends?
Knowing what stocks give dividends is the key to success here – but it’s not always a cut-and-dried process. Your best bet is likely to consult an experienced broker or to keep your eye on the wider markets to see which companies will likely be able to afford sharing off dividends from time to time. However, the biggest firms aren’t always the ones who are most likely to give stock dividends – consider looking into long-running companies with low volatility, for example. You don’t necessarily have to head for Netflix or Apple to get your hands on the best stock dividends.
How Much Can I Make From Dividend Stocks?
This varies – and it really does depend on how much you put in, as well as how much a given company’s shares are selling for. A company will also decide on how much stock or cash to offer per share, too. For example, if we were thinking about cash dividends, a firm may expect to pay out £1 per share – which means if you had 50 shares, you’d get £50 back. Stock dividends work a little differently in that you’d be given a percentage of stock per share you own.
The amount you make long term is, of course, all down to how shrewd an investor you are. You’ll need to look carefully at the companies you’re adding to your portfolio, and will need to look out for brands which are likely to experience growth over years to come. Short term success may be enough if you’re happy to buy and sell very quickly, but the bigger money will come from slow-burning share ownership. Don’t be afraid to hold out for big money if a company can support it!
What Are the Best Dividend Stocks to Buy?
To find the best dividend stocks to buy from year to year, you’re going to need to do some serious research. That means talking to experts, looking at various guides, charts and tools, and working out which firms are likely to grant you the biggest yields. It’s hard to say in general which stocks are going to give you the best dividends from season to season. After all, fortunes change, as do tastes and trends. It may be obvious to suggest buying into someone as broadly popular as Huawei or Amazon right now, but you won’t necessarily get the best returns in the long run.
The best dividend stocks to buy will be ones that fit your interest, and ones which you can buy into generously. It is never worth entering into stock dividend investing unless you can put plenty of money into your portfolio. Money in gets money out – that, ultimately, is the way stocks and shares work the world over.
When Do Stocks Pay Dividends?
As mentioned, shareholders will normally find out that they are due to be paid dividends when a company decides to announce as such through a public press release. It will also be considered major news for the markets, which means you should keep a close eye on these channels for upcoming news and changes. But when do stocks pay dividends on the whole? Is it a regular occurrence with a set timeframe, or is it more of a random event?
Unfortunately for anyone looking to plan in advance, payouts really do depend on many different factors. It’s probably most likely you’ll see dividend payout announcements made at the end of each quarter, as this will be when companies tie up their financial reports. However, again, it can vary depending on the company involved, their growth potential, and their profit/loss margins. The best thing to do, on the whole, is to try and invest in several different companies. Therefore, you will be able to take on dividends from several brands and names throughout the year. Unfortunately, it’s hard to say exactly when dividends will arrive if at all – as the rules and the goalposts can change, too.
While stocks and shares ISAs may not pay dividends themselves, they do hold plenty of benefits for investors. Investment dividends received within an ISA will be protected against taxation up to £2000 – which is a nice little top-up in addition to the general personal allowance, which would otherwise still apply. Of course, these figures won’t matter too much if you are focused on receiving stock dividends as opposed to cash.
However, opting to take out a stocks and shares ISA is a good idea if you are interested in diversifying your portfolio, and are open to cash dividends. As it stands, however, to be able to benefit from stock dividends, you should consult a broker or a company directly to learn more, and to of course keep track of how they are performing. If you have to take cash dividends for a short period in lieu of stock, this is by no means a bad thing!
What is a Good Dividend Yield for Stocks?
Firstly, let’s consider dividend yields in simple terms. Yields will help you understand how much a company will offer out in terms of a dividend compared to their share prices. Shareholders and stockbrokers can work out yields through a simple equation – which basically sees you dividing the annual dividend offered by a company by its share price. This should give you a small figure, but one which you should use as a percentage when looking at yields in detail.
It’s generally suggested that anything between 3 and 6% yield will be worth your time investing in. However, higher yields than this, while attractive, do carry their own risks and potential problems. For example, the higher a yield, the more likely it may be that a company chooses to exercise its right to cancel the dividend process outright. Therefore, you are going to want to look for a dividend yield which is somewhere in the mid-ground. This should offer you a nice return with little risk in the long run.
Should I Invest in Dividend Stocks?
Investing in dividend stocks, as with all types of investment and long-term saving, can carry risks. With the right research and with the help of a good broker, there is no reason why you won’t be able to turn a healthy profit from investing in a few big brands willing to share off stock as an odd reward or two. However, you’re going to need to keep a very close eye on what’s happening with your dividends on a regular basis.
The fact that a company can choose to alter or even cancel their dividends policy outright may put many potential investors off taking the plunge. However, this isn’t to say investing in stock dividends isn’t worth the effort. What it will mean, however, is knowing when to quit and to sell – and this will all depend on the company you buy with, as well as how likely it is that they will cut their dividends process short.
All in all, dividend stocks are a great way to build serious money in the long run, but as always, make sure to do plenty of research before you get too deeply involved! The money you’ll get from stock investments depends on the time and cash you’re willing to put in.