The stock market can be a confusing place—even for professionals. Even if you understand interest rates and P/E ratios, the meteoric rise of a random meme stock is enough to confuse even the savviest hedge fund managers.
Dividend investing might take you back to simpler times. Rather than gambling on the price of a high-flying tech stock, blue-chip dividend stocks pay you a portion of their profits every quarter like clockwork. And, even if you don’t need the income right now, you can reinvest it to harness the magic of compounding and grow your nest egg faster.
In this article, you’ll learn why you should invest in dividend stocks and some dividend investment strategies to get you started on the right foot.
Why Invest in Dividend Stocks?
What are your financial goals?
Are you a young investor who wants to grow your nest egg over 30 years? Or are you a retiree who needs income now to support your retirement lifestyle?
It turns out dividend stocks can help in both cases!
Dividend stocks produce monthly or quarterly income. If you need the income, you can take the cash out of your brokerage account. Or, if you want to grow your nest egg, you can reinvest the dividends to purchase more shares of stock.
Unlike bonds, dividend stocks can (and do) appreciate over time. So, even if you take the income each month or quarter, your nest egg can continue to grow.

Dividend stocks outperform non-dividend stocks over time. Source: Hartford Funds
Even better, dividend stocks appreciated faster than non-dividend-paying stocks with less risk over the past 50 years (see the table above). This means you’re not missing out on anything by investing in “safe” dividend stocks—you can be making more!
How to Start Investing in Dividend Stocks
Investing may seem daunting to newcomers. But today’s brokers make the process easier than ever. You can start with as little as $1 and invest in a few clicks or taps.
Of course, the hard part is knowing what and when to buy, and when to sell.
There are two approaches to dividend investing:
- Passive: You can invest in a dividend ETF, where a professional buys and sells a portfolio of individual stocks for you. In exchange, you pay a modest fee (usually less than 1% of your total value per year).
- Active: You buy and sell individual stocks to create your portfolio. While you don’t pay any fees this way, there’s more work involved. You must research stocks, watch the market, and understand what to buy and when to sell.
If you’re new to investing, the “passive” approach is best.
When choosing a dividend ETF, there are a few things to consider:
- Yield: The dividend yield is how much money you earn as a percentage of your total investment. You can think of it like an interest rate. The higher the yield, the more you’ll earn per dollar you invest.
- Diversification: Diversification ensures that one bad apple doesn’t take down your entire portfolio. By holding many companies across many industries, there’s less risk that problems in one place will impact everything.
- Expense: Dividend ETFs charge an “expense ratio” that’s expressed as a percentage of your total investment per year. For example, a 0.5% expense ratio with a $10,000 investment means you’re paying $50 per year in fees.
- Returns: Dividend ETFs should increase in value over time. You should make sure these returns match your expectations.
Most Popular Dividend ETFs
Name | Ticker | Yield (ttm) | Market Cap |
Vanguard Dividend Appreciation ETF | VIG | 1.77% | $77.6B |
Schwab US Dividend Equity ETF | SCHD | 3.31% | $55.4B |
Vanguard High Dividend Yield Index ETF | VYM | 2.82% | $54.0B |
iShares Core Dividend Growth ETF | DGRO | 2.29% | $26.9B |
SPDR S&P Dividend ETF | SDY | 2.50% | $20.5B |
Data as of April 10, 2024. Source: VettaFi
Dividend Investing Strategies & Tips
Dividend ETFs may be the easiest way to invest in dividend stocks, but many people prefer a more hands-on approach.
Dividend screeners, like TrackYourDividends.com, are the best starting point. You can input some criteria, such as dividend yield or price-earnings ratios, and create a list of matching stocks that serve as a shortlist for further research.
If you don’t know where to start, consider using popular dividend screens or lists. For example, the Dividend Aristocrats screen looks at blue-chip companies in the S&P 500 index that have increased their dividend for 25 or more consecutive years.

Source: TrackYourDividends.com
After coming up with a list of prospective stocks, you need to narrow down the best options for your portfolio. You should consider everything from the dividend yield to earnings growth to volatility and other risk factors to ensure it’s a good fit for your portfolio.
Some questions to ask yourself include:
- Does the stock’s dividend yield provide enough income to meet my goals?
- Does the company earn enough to continue paying dividends?
- Is the stock too risky for my portfolio? Does it diversify my portfolio?
TrackYourDividends.com simplifies the research process by computing “scores” for quality, value, trends, and dividend safety. So, it’s easy to rule out low-quality stocks without having to necessarily know what a dividend payout ratio is or how to read a balance sheet.
You should aim to create a portfolio of at least ten to 20 stocks spread across different industries. The overall portfolio’s volatility and risk should match your risk tolerance levels. That way, you won’t be surprised by a sudden downturn.
TrackYourDividends.com’s Diversification tool shows you a breakdown of your portfolio by sector, making it easy to see if you are overly concentrated in any industry.
After building your initial portfolio, you also need to adjust and rebalance it regularly. For example, if one stock doubles in value, it might account for an oversized percentage of your portfolio. So, you may need to sell some shares to “rebalance” your portfolio and maintain your original percentages.
Track Your Goals & Adjust
Whether you invest in dividend ETFs or individual stocks, you should track your portfolio to make sure you’re on target to reach your goals.
TrackYourDividends.com provides a helpful Future Value tool that looks at your portfolio and projects your portfolio growth and income levels over time. You just need to add some assumptions like dividend growth rates, price appreciation, and annual contributions.

Source: TrackYourDividends.com
If you rely on income, you can also use the Upcoming Dividends tool to see how much income you can expect on what days. This can help with budgeting when you need to know when dividends will hit your bank account.
In addition to tracking income, you may need to adjust your risk levels. As retirement approaches, many people are less willing to take big risks with their portfolios. This might mean shifting from higher-yielding energy stocks into less risky blue-chip stocks. Or you might even move some money into bonds or other fixed-income investments.
The Bottom Line
Dividend investing may not be as exciting as meme stocks, but it’s a reliable way to grow your portfolio and generate a steady income. If you’re new to investing, it’s easy to get started in a few clicks with a dividend ETF. If you want more flexibility, tools like TrackYourDividends.com simplify research to help build the right portfolio.