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What Are Dividend Stocks, and How Do I Find the Best Ones?

New investors tend to approach the topic with big goals of residual income. It's that thought of having money work for you so you can sit back and relax.

Dividend stocks capture your attention for this reason.

What if you could get money each month for doing nada? Let's explore this idea and the concept of dividend investing.

What are Dividend Stocks?

The keyword we're looking at here is dividends.

Dividends are a portion of a stock paid back to its investors. This is what's called the "dividend yield" or the percentage of the stock paid. Now, there's also how often the dividend gets paid — ranging from daily to yearly.

Why do companies pay dividends?

In most cases, companies pay dividends because they're a rather stable stock. Investors aren't earning off growth and so they earn through these payouts. You tend to see large corporations that have a huge market share go this route.

Attracting investors is another reason for paying dividends.

The concept is reflected in this very article. You're interested in earning a residual income and so dividends are a major factor.

Qualifying Stocks That Pay Dividends

Let's assume you have a working knowledge of the investing basics. You've got an account somewhere to do investing. And, you know your way around financial sites to get a read on companies and their stock.

Let's use a minute to qualify dividend stocks:

You can get started by looking at the top dividend stocks and going from there. Or, you could create a watch list based on stocks that caught your attention.

When looking into the company behind the dividends:

  • Check their balance sheet and projections
  • Look for companies with low debt-to-equity
  • Factor in their historic payout and growth
  • Market and sector trends, and its outlook

You could qualify stocks based on what expert investors are into. Or, dive right with 20 or 30 dividend stocks and learning as you go. Employers, too, may offer retirement options that include curated portfolios with these stocks!

The "Dividend Aristocrats" Avenue

The "Dividend Aristocrats" are companies in the S&P500 that have:

  • Offered (and increased) dividends and yields
  • Paid consistently for the past 25 years

These are sort-of the holy grail of dividend investing. A portfolio of them brings consistent dividend payouts + market stability.

Here are ten to get you started:

  • Coca-Cola (KO)
  • Johnson and Johnson (JNJ)
  • Target (TGT)
  • PepsiCo (PEP)
  • Lowe's (LOW)
  • McDonald's (MCD)
  • ExxonMobile (XOM)
  • ATT (T)
  • Realty Income Corporation (O)
  • Chevron (CVX)

You can even find most of these lumped into "dividend aristocrat ETFs". This makes this investment strategy even easier — especially if you want to be hands-off.

Dividend Investing Tips and Tricks

Dividend investing is sort-of a set it, forget it style of investing. Yet, you need to do the research up-front to capitalize in the long-run.

Here are a few tips and tricks if you go this investing route:

  • Look for consistent dividend payouts on their sheets
  • Understand that you'll have dividend taxes
  • Factor the company's sector and viability in the markets
  • Diversify your investment strategy across several sectors/companies

There are a lot of great learning resources and mentors that'll help with investing. Absorb as much as you can and really get involved with the community. This makes it so you're making educated vs snap/gut decisions with money.

Explore Two Forms of Drip

"DRIP" stands for "dividend reinvestment plan". The strategy funnels earnings from dividend stocks back into trades. It's automated so you can relax (even more) and watch your portfolio grow!

There's also that drip...

...as in aesthetics and style, ya know?

Why not combine both this love for dividends and investing in one? Look great while making those major trades and plays.

Check out our shop for the coolest selection of investing-related apparel!

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