What is a Dividend?
A dividend is a portion of a company’s profit that is typically issued to shareholders as a cash payment. Not all companies pay dividends, but many find it to be a good use of their profits and pay dividends on a regular basis.
There are numerous benefits to investing in dividends. Dividend income not only offers investors a steady stream of income, it also helps them to fight off the erosion of purchasing power created by high inflation.
Dividends have been around since the 1600s, when they were first offered by the Dutch East India Company. Since then, they have only grown in popularity and usefulness. In fact, from 1930 through 2019, dividends contributed 42 percent of the total return of the S&P 500. In more recent years, particularly with the development of dividend funds and ETFs, the number of investors seeking dividend income has rapidly increased.
How to Find the Best Dividend Paying Stock
When it comes to finding the best dividend paying stock for your portfolio, you may be tempted to focus solely on yield. After all, dividend income is the primary reason people invest in dividend stocks. But keep in mind, there are many ways to analyze yield. We recommend using several key dividend ratios to take a multi-faceted look at stocks you are considering.
In addition to analyzing yield, there are other factors to consider when you are looking for the best dividend paying stocks. For example, you will most certainly benefit by evaluating basic measures of a company’s financial health.
Moreover, we believe companies that have a consistent history of increasing payments make better long-term investments than those that simply have a higher yield today. Luckily, there are many lists that give you a quick and easy way to identify these historically great companies.
More Than Dividend Stocks
Finding the best dividend paying stocks will require some research and due diligence on your part, but your portfolio is more than just the stocks you buy. Portfolio construction is how you blend your investments together to give you the greatest potential to meet your objectives while also managing your risk. Having a working knowledge of assets classes, allocation, and diversification will help you become a better dividend investor.
As an investor seeking dividend income, you are also likely to hold more income-focused assets. Some of these products are more complex and can be confusing. Investing in something you do not understand adds an avoidable risk to your portfolio. We recommend taking a comprehensive look at some of the most common income producing investments.