Investing in dividend-paying stocks is a great way to pad your yearly income. Whether you’re looking to expand your portfolio or just getting into the stock game, these are a fantastic option for you.
But how do you find the best stocks with the highest dividends to invest in?
Don’t spend time second-guessing yourself when you could be earning. We’ve got all the tips and tricks you need to find the best high-dividend stocks for your portfolio.
Learn Everything You Can
First things first:
You should know a thing or two about dividend-paying stocks.
Before you dive into the deep end, take the time to get some knowledge under your belt. You don’t want to blindly jump into an investment without knowing what it’s all about.
Trust us, your wallet will thank you later!
Here are a few things to know before investing in dividend-paying stocks:
What Is a Dividend?
Put simply, a stock dividend is a payment you receive from the company you own stock in. It’s a way for them to share a piece of their profit with you, a loyal investor.
For example, if you own ten shares in a company that pays a $1.50 dividend per year, you will receive $15 each year from those stocks.
Most companies pay dividends quarterly, so you can expect to see that extra income throughout the year.
What Does a Yield Mean?
A dividend yield is a percentage you will see while exploring dividend-paying stocks, and it’s an important figure to pay attention to. You can figure out a stock’s yield by using this formula:
Annual dividend by share ÷ Price per share = Dividend yield
That means a company with a $1.50 annual dividend for shares that cost $100 would have a 1.5% dividend yield.
Keep in mind that yields are always changing for a variety of reasons, including changing share prices and growing or falling dividend payouts. So, make sure you keep an eye on them!
What Is a Payout Ratio?
The payout ratio of a stock is the amount the company pays to stockholders in comparison to the amount they make. If a company made $7 million in a quarter and paid out $3 million in dividends, that means their payout ratio is about 43%.
The reason this is so important is that it lets you know how sustainable their dividend payouts are.
If a company has a high payout ratio, especially near or above 100%, their dividends probably aren’t going to last. It’s best to look for payout ratios at or below 50% if you want stable stocks with room to grow.
Research Quality Companies
Don’t go into investing with only dividends in mind. You want to know you can trust the company you’re investing in, so their reputation should be your first priority.
Before you look into stocks, make a list of promising companies.
These can be companies you’re already familiar with and know you would like to invest in. They can be companies whose business model you understand, rather than companies that confuse you.
After you have a handful of options ready to go, research them and find out if any of your chosen companies are dividend payers.
Don’t Be Fooled by High Yields
But aren’t high yields a good thing?
That’s the way it looks from the outside. However, a high yield could just be hiding a money-losing stock behind the deceptively high percentage.
That’s because when you use the formula above to find the dividend yield, a declining stock will show a quickly growing yield. The payout amount hasn’t gone up, but the price per share has gone down, which isn’t what you want to see.
Only trust high yields after you’re sure a company has stable earnings, steady growth, and a reliable payout ratio.
Pay Attention to Dividend Growth
A growing dividend is a good dividend.
One of the best things you’ll see when you’re looking at a company’s stock is that its dividend payments are growing over time. That’s why a lower dividend yield isn’t such a bad thing.
Check a company’s growth each year to make sure they are steadily getting bigger with time, resulting in higher dividends.
Let the Experts Guide You
When you get stuck, the best thing you can do is ask someone that knows what they’re talking about.
Hire a financial advisor to help you invest your money wisely. They will take the work entirely out of your hands, making it easier for you to choose investments.
If you prefer to do things on your own, use a website dedicated to helping you find the best dividend-paying stocks.
Investing money, especially if it’s your first experience with the stock market, can sometimes feel a little overwhelming. Asking for help will make a big difference in getting the most out of your stocks.
When you’re looking for the best stocks to invest in, it pays to know what you need to watch out for. Research the companies you’re considering and make sure they have the dividend, yield, and growth potential that make them worth your investment.
Don’t be afraid to ask for some help if you find yourself lost in all the numbers!
With a bit of knowledge, a little digging, and the power of the internet, there’s pretty much nothing you can’t find — and that includes finding the best high-dividend stocks for your portfolio.
Adam Marshall is a freelance writer specializing in all things apartment organization, real estate, and college advice. He currently works with Grove at Huntsville to help them with their online marketing.