A dividend stock chart showing an upwards progression

Looking to Invest Your Money? Consider Dividend Stocks

What are Dividend Stocks?

Modern financial markets provide investors with a wide variety of opportunities. Among all of the choices available, dividend stocks can provide numerous potential benefits in both bull and bear markets. But what exactly are they?

A dividend stock is simply a stock that pays a dividend. These payments are essentially a way for the company to allow shareholders to participate in corporate profits. Stocks that pay dividends are typically companies that have an established track record in their field, and they may potentially provide a degree of stability. In addition, they also provide investors with a way to earn consistent income.

Types of Dividend Funds

Different types of these assets can have different pros and cons. Long term dividend stocks may provide portfolio stability and income. Growth stocks may also pay dividends, but may be subject to more price volatility. High dividend stocks may carry more risk, as higher risk companies may be forced to pay a higher dividend to attract investors.

With so many different types, it is imperative to first determine your risk tolerance, investment timeline, and objectives before making any decisions.

How are Dividends Paid?

Dividends can be paid in several ways. Many companies pay them out in cash, while others may pay dividends in stock. Companies typically pay dividends on a regular basis. The frequency of payments is usually yearly, semi-annually, quarterly, or monthly. Monthly dividend stocks, for example, pay dividends each month to investors.

Investors can choose to take dividend payments or to have the dividends reinvested. Putting these payments right back to work to acquire more shares can be an excellent way to build a significant allocation. Monthly dividend stocks, for example, could provide the investor with more capital to purchase more shares each month.

Choosing the Best

When it comes to choosing the best dividend stocks, there simply is no right or wrong answer. Stable, long-term dividend equity may be the best choice for investors who want to keep volatility to a minimum. High dividend stocks may be a better choice for investors who are willing and able to take on more risk.

Investors looking for the safest investment option may want to consider companies with a long track record of growth and stability. However, all dividend stocks carry risk; even the safest among them can lose value or even cease paying a dividend.

How to Invest in Dividend Stocks

Investing in these types of assets has never been easier or more convenient. There are several ways to invest in companies that pay a dividend, and these investments can be made in cash accounts or tax-deferred retirement accounts. Your brokerage account representative or financial adviser can also show you how to invest in this type of equity, and can walk you through the process step-by-step.

In addition to brokerage or other accounts, investors may also be able to purchase dividend stocks directly from the company. Many companies offer a direct-purchase program, and will be happy to assist you in acquiring shares. Whichever method you choose, make sure to also consider and compare transaction costs. Lower transaction costs can make a significant difference on portfolio performance over the long-term.