Buying stocks that pay dividends is one of the safest and most secure ways to invest money. Even in a recession or economic downturn, solid dividend paying stocks offer an opportunity to purchase quality companies at a discount. While it is impossible to trade against the macro movements of the stock market, investing in sound stocks that pay dividends can provide long term growth and income generation.

While investing in stocks that pay dividends can be a safe investment, there are some associated risks. Not all high yield stocks are quality investments as the financial details may be skewed. This is why it is critical for dividend growth investors to study the market and learn how to make sounds investment decisions. Interested investors new to investing can start by following the steps listed below to begin purchasing dividend paying stocks.

Things You Will Need

internet access
online discount broker

Step 1

Build a list of stocks that pay dividends by leveraging information from several trustworthy sources. Check out reputable published lists including the S&P List of Dividend Aristocrats as a place to generate ideas. Investors can also refer to financial websites, blogs, and other online investing membership sites to begin forming a list of dividend paying stocks. Investors can also identify high yield investments on their own by running a stock screen looking for dividend paying securities.

Step 2

Open up an account with an online discount broker, if you don't already have one. While it is possible to invest in stocks that pay dividends without an online broker, the commission fees are generally much less. In addition, online brokers offer a wide range of resources that an investor can use to their advantage. For example, a discount broker may provide a screening tool that will allow an investor to filter out the securities that fit their trading style.

Step 3

Research the stocks that pay dividends that was created to begin identifying a subset list of the best investments. While this type of list may change from investor to investor, there are still several traits an investor should look for. Investors can start by focusing on past dividend performance as well as the financials of the company. A subset list should be created that includes securities that an investor plans to add to their portfolio at any time.

Step 4

Begin purchasing stocks that pay dividends that were narrowed down from the original list. These investments should include the best dividend paying stocks that are available today. An investor should identify an entry price for all of the stocks on their subset list in which they are comfortable with. In the meantime, funds should be allocated and transferred to the online discount broker account so stocks can be purchased.

Step 5

Reinvest payments that are generated from stocks that pay dividends to grow the size of the investment portfolio. Many online discount brokers offer a dividend reinvestment plan (DRIP) as an automated service. This service is typically easy to setup and will automatically take any dividend payments and turn around and purchase additional stocks shares of the same security.


Tips & Warnings

  • Continue to allocate additional funds each month (if possible) to begin to grow your stock portfolio exponentially.
  • Chasing the highest yielding stocks can be a risky investment. Any stock with a yield greater than 5% - 6% should be studied very closely before making any investment.