- Dividend yield is a powerful metric to measure how much you’d make in dividends each year compared to how much you’d have to invest.
- Historically, dividends have made up roughly 40% of the stock market’s total returns.
- Stocks with high dividend yields (but NOT the highest yields) perform well over time.
- We walk through a step-by-step guide to finding the best dividend stocks, including screenshots and direct links to a stock screener that’s pre-filtered for high-potential dividend stocks.
In this lesson we’re going to dig into one of the most steady and profitable strategies on the stock market: dividend investing.
Following our familiar format, let’s walk through four important concepts:
- What are dividend stocks?
- What should you know about investing in dividend stocks?
- Which dividend stocks perform best?
- How do you find the best dividend stocks to buy? (A step-by-step guide)
What Are Dividend Stocks?
A dividend stock is any company that pays a regular dividend to its shareholders.
Companies that pay dividends are returning some of their profits to shareholders in the form of a regular cash payment.
Beyond that, we’d narrow the definition even further to focus on companies with a dividend yield of at least 1%. Anything less than 1% is probably not worth owning (from a dividend income perspective).
What Should You Know About Investing in Dividend Stocks?
Many companies (literally thousands) pay dividends to their shareholders on a regular basis.
Companies that pay dividends have decided they don’t have a high-growth area in their business to invest all their cash, so they’ll return some of it to shareholders.
These slow-growing, more mature companies tend to pay dividends while fast-growing companies tend to reinvest their cash and profits into growing their business.
Dividends are usually paid out quarterly and over a full year they typically add up to somewhere between 1% – 6% of the amount you would pay to buy a single share of stock.
As a reminder…