How to Make Money through Investing in Dividend Stocks?

Make Money through Investing in Dividend Stocks

Dividend stocks are a great allure for many investors around. They help to generate a steady passive income while also offering an opportunity to reinvest the very dividend for additional stocks of the company. Pair that with the general consensus that any dividend-paying company is reckoned to be financially stable, it makes complete sense going for these ones.

Investing in dividend-paying stock is a great way to make money through investing in stock market and most of the investors are trying to find their way into it. However, there is still confusion hovering around how to make money by investing in dividend stocks. We here look to address the issue with our brief discussion on dividend stocks and tips to invest in it. Read along.

How to Invest in Dividend Stocks?

Investing in dividend stocks isn’t merely about finding a stock with the highest dividend yield and buying them out. There’s a lot more to it than that. You can go for the individual dividend-paying stocks or opt for the exchange-traded funds that contain these dividend-paying stocks. We’ll here cover both the bases down below.

1) Buying Individual dividend-paying stocks

Buying individual dividend-paying stock is about finding the companies with dividend-paying stocks and investing your money into it. It is a time taking an approach as you need to be hands-on with it. You have to analyze the company and the industry before you can invest your money into it. It gives you an option to personalize your portfolio and pick those that are suited to your needs.
We’ll detail the process for buying a dividend-paying stock down below. Read along.

How to buy a Dividend Stock?

Since the talk is about the dividend-paying stock you need to find the stocks or the companies that are offering dividends. Look for the stats and check whether the companies that are offering the dividends have a healthy status or not. You can check it by zeroing in their dividend history and see whether they have been making a steady stream of dividends or not. Furthermore, you should also have to analyze the company based on financial parameters. You can do so simply by seeking answers to these following queries:
  •        What is the financial stance of the company in comparison to its counterparts?
  •        Is the company functioning on a stable note in the market?
  •        How good is the management of the company?
  •        Are the financial statements of the company strong enough?
  •        Are there any strong indicators for the future growth of the company?
  •        How much can you invest in the dividend-paying stock?

You can also seek consideration for the payout ratio which will showcase a good idea about the company. The dividend payout ratio is calculated in terms of income paid by the company in the form of dividends. If the ratio is lower, it means that the company is safe to go because of the possibility of dividend growing over a forthcoming period if fairly good approach.

The next approach is going for the exchange-traded dividend funds. Let’s have a look at it.

2) Buying Dividend ETFs

Dividend Exchange Traded Funds (ETFs) are similar in aspect to mutual funds except for the fact that they are traded on the exchanges. They are a simple and straightforward option and allow an investor to avail of the dividend-paying stocks. This one being an exchange-traded fund is a collection of dozens or multiples of dividend stocks. It is flexible in nature and offers a good investment option for people who are looking to start their journey into the investment field.

Dividend ETFs are a hassle-free option as they allow you the option for diversification and also helps to provide you a safety bracket. Since it is made up of dozens of dividend stocks, even if one of your stocks doesn’t perform as expected then other stocks will negate that impact.
Here’s how you can buy a dividend ETF.

How to buy a diversified ETF
  •          Find a broadly diversified ETF

-          You should start by finding a broadly diversified ETF. Look for the ones traded on the exchange that comes with the package of different stocks from a host of companies.
  •          Analyze the ETF

-          Merely going for any dividend based ETF isn’t the right way to do it. You need to analyze them in order to find the best one. You can calculate the same via these points:
a)      Dividend Yield: Dividend Yield looks at the aspect of how much the company is paying out the dividends each year. This is generally expressed on the percentage basis.
b)      Timespan: This segment looks at the time span of returns over a time period. It’s preferred if you look at 5-year returns.
c)       Expense ratio: This is one of the major markers while analyzing the dividend ETF. Look for the one with the lower range of expense ratio.
d)      Stock Size: Dividend ETFs are the pool of dividend-paying stocks from large, mid and small-cap companies. It is advised that you go for a large-cap based one as these tend to be much safer and less volatile in nature.
  •          Buy the ETF

-          Once you have found the ETF and analyzed it accordingly, you’re good to go for the investment into the ETF’s.

Bottom line
When looking to make money off the dividend stocks, the first regard should be towards finding a consistent piece rather than the highest yielding dividend stock. The secret to making money from dividend stock is to look for the long term, so it’s always advised to find the stocks that give consistent returns over a period of time. This way you can get constant returns whilst also seeing your investment grow with time.