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About Dividend Paying Stocks

By Edited Nov 13, 2013 1 1

Dividend paying stocks are those that send a payment to their investors. For the most part this is a cash payment at regular intervals, though the payment can be in the form of just about anything in some cases, and one-time dividends are sometimes made as well. Investors that are looking to invest in these companies which pay dividends are often attracted to them by their track record of paying consistent dividends over the course of years or even decades. It's one way of avoiding the high risks of investing in the stock market and earning a consistent return.

Companies that pay dividends tend to try to keep their dividends at a consistent level, because investors that are looking to invest in dividend stocks tend to be more conservative in their level of acceptable risk. Too much volatility in regard to the dividend might scare off those who are invested, or looking to invest, in that company. For this reason, dividend investing is one of the least volatile methods of investing. While the underlying stock value may fluctuate greatly, the dividend can reasonably be expected to stay at relatively the same level. This is not always the case though, so consult with any given company's history to see if they have been reliable in the past in this regard. It's important to remember though, that even a company which has paid a dividend for many years or even decades can be forced to stop paying in some cases, so it's never a sure thing. Still, if you are looking for a stable income from your investments, dividend paying stocks are one of the best bets an investor can make.

On the other hand, stability has it's price. Low risk generally means low reward. Dividends can't offer the insane upside potential that stocks, options, futures, and currency trading can. Over time, the small returns can really add up, and if you reinvest dividends the compounding returns can be extraordinary.

To decide which dividend paying stocks are right for you and your investing strategy, it's important to understand how to calculate the dividend yield. Dividends are generally paid out quarterly, though they may be paid on other timescales and in rare cases there are "one-time" dividends that like the name suggests, are only paid one time. First normalize the dividends you will be comparing to the time period between payouts. Then take that result and divide it by the respective share price. The result is the percentage return (in the form of dividends) that you can expect from your investment in a given amount of time.

One of the other draws for dividend paying stocks is that it's a way to invest in the market without having to spend lots of time keeping up with news and price movements. Since the dividends tend to be consistent, there isn't the constant need to keep ahead of the news and the rest of the market. Of course it doesn't mean you have to disregard how your investments are doing, or that you even should, but it does offer a lower level of necessary focus that melds well with the desires of many casual investors.



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Comments

Jan 13, 2011 12:38am
southerngirl09
More good information on dividend paying stocks. Thanks for sharing.
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