How to earn dividends and how to choose dividend stocks?

Dividends and dividend stocks: What do you need to know?
  • Jonathan Rowe
  • 22.09.2023

Dividends are part of a company's profits that it shares with its shareholders. Dividend stocks are shares of companies that regularly pay dividends.

How to make money on dividends?

To make money on dividends, you need to buy shares of the company that pays dividends and own them on the date the shareholder register closes. On this day, the company determines the list of shareholders who will receive dividends.

Dividends are paid in the form of cash or securities. Cash is usually paid out once or twice a year, and securities – once a year.

How to choose dividend stocks?

When choosing dividend stocks, you need to consider the following factors:

  • Dividend yield. This is the ratio of dividends paid to the share price. The higher the dividend yield, the greater the income that can be received from investing in that stock.
  • Dividend stability. Companies that regularly pay dividends over many years are considered more stable and reliable.
  • Share valuation. The share price must be fair in relation to its earnings and growth prospects.

Strategy for investing in dividend stocks

There are several strategies for investing in dividend stocks:

  • Investing in individual stocks. This is the riskiest strategy, but it can also bring the greatest profit.
  • Investing in dividend stock index funds. This is a less risky strategy, but it may also bring lower returns.
  • Investing in dividend stock ETFs. This is an even less risky strategy than investing in dividend stock index funds.

Conclusion

Dividend stocks can be a good way to earn passive income. However, it is important to carefully select dividend stocks and consider the risks of investing.

Additional tips for investing in dividend stocks

  • Don't put all your money into dividend stocks. Always keep some of your money in riskier assets, such as growth stocks.
  • Regularly review your portfolio of dividend stocks. You can add new stocks or sell existing stocks to keep your portfolio in balance.
  • Don't forget about taxes. Dividends are taxable, so it's important to consider this when planning your investments.
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