3 Popular Strategies Investors Apply for Dividend Stock Investing
Dividend stock investing is a great way to secure regular income and ensure growth. But you don’t just buy a dividend stock without analyzing these factors.
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When you start with online stock trading, you need to have a particular objective or aim. If you’re looking for a steady income, dividend stocks could serve your needs. Dividend stocks have always been attractive propositions for investors. Along with holding a stock, you get a regular source of income as well. And some of the good dividend stocks represent high performing companies with possibilities for earnings growth. That could result in the stock value appreciating too and offering you long-term gains. On paper it all looks nice for sure. But there are different categories of dividend stocks, and selecting them involves employing certain strategies and ensuring they are in line with your investing objectives. Motley Fool picks out three options out there, if you wish to get involved in dividend stocks:
You have dividend stocks that offer you dividend yields that are above average
There are dividend stocks having a history of increasing their dividend payments
You can also invest in ETFs focusing on dividend stocks
Above-average Yields Are Great, But Check Fundamentals When you invest in dividend stocks providing yields above average, your goal is to maximize your income. But then, it isn’t as simple as picking the stocks offering the highest dividends. There are many other points to consider, since dividend stocks could provide a great deal of risk as well. Some companies pay more dividends than their earnings could justify. If that happens every time, the company cannot sustain the payment. It may have to reduce the dividend payment or even cut it. This has happened to many of the high-yield stocks out there. When that happens, not only do shareholders lose income but the stock price also drops significantly. So when you’re looking for high-yield stocks, make sure you check the fundamentals of the company, whether its business model, earnings and profits support the payment of such high dividends regularly. Stocks with a History of Dividend Growth Are Usually Reliable The other option is to invest in dividend stocks that have a history of dividend growth. This is an important criterion since data shows that the stock’s dividend has been growing for a significant period of time and, as a result, is likely to continue more. Such stocks are sought by investors who aren’t really in need of current income but are more focused on how their income stream grows over the long term. These investors keep looking for stocks that have growth trends that are the most attractive. www.tradezero.co
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Motley Fool points out that the stocks belonging to the S&P 500 Dividend Aristocrats have managed to raise their yearly dividend payments every year for the past 25 years at least. These companies belong to the S&P 500 Index and so are known to be able to overcome unfavorable economy cycles. The risk of any dividend cut in the future for these stocks is therefore low. Dividend ETFs Expose You to a Range of Stocks The third option discussed is investment in dividend ETFs. ETFs are a collection of stocks. Some ETFs focus on dividend stocks. Motley Fool points out the example of Vanguard High Dividend Yield ETF ($VYM) that focuses on dividend stocks yielding above average. The fund only picks stocks meeting its quality standards and are sustainable financially. And you have ETFs such as the Vanguard Dividend Appreciation ETF ($VIG) that concentrate on dividend stocks whose payouts have increased over time. There are some aspects of choosing dividend ETFs that you need to remember. They have fees. If an ETF charges low fees, it ensures that you get to enjoy more of the dividend income. It is important you figure out how the ETF works so you know the kind of stocks you are getting exposed to and how they are weighted in the portfolio. Any discounts that come with the ETF are also welcome. Online trading brokerages also offer commission free trading options.
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