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How To Buy Dividend Stocks (All You Need To Know)

Wondering How To Buy Dividend Stocks?

What should you consider when buying dividend stocks?

How do you buy the stocks?

Keep reading as I have gathered exactly the information that you need!

Let me explain to you how to buy dividend stocks so you know all about it!

Are you ready?

Let’s get started!

How To Buy Dividend Stocks 

Investing in dividend stocks is a great way to build your wealth over time while generating a steady stream of passive income.

Now, you are looking to invest in dividend stocks and are wondering how you can do so.

In this article, I will break how you can invest in dividend paying stocks so you can immediately get started!

The reason why dividend stocks are attractive to many investors is that they are:

  • Less volatile stocks
  • Offer you a steady stream of cash flows (dividends)
  • You can benefit from the appreciation of the stock price over time 
  • Companies with growing revenues can increase their dividends over time

Also, if you reinvest your dividends to buy more shares of the company over a long period of time, you will take advantage of the magic of compounding returns.

I will answer your question by telling you:

  • How to invest in dividend stocks from a strategy perspective
  • How to buy dividend stocks technically speaking

Let’s dive right into it!

How To Invest In Dividend Stocks

There are different investment strategies out there offering you varying levels of risk and return profiles.

Dividend Stocks

One of my favorite investing approaches is to invest in dividend stocks.

Dividend stocks are companies that pay their shareholders dividends on a regular basis (typically on a quarterly basis).

One way to invest in dividends stocks is to individually purchase shares of stock in companies that pay dividends.

The advantage of this method is that you can do your market research and find a company that meets your investment criteria.

Generally, you want to see a good track record of dividend payment, company revenues growing over time, and a sound business model.

If you build a diversified portfolio of dividend stocks in different sectors, industries, or even markets, you can take advantage of the dividend payments paid to you over time and reduce your investment risk.

By managing your own portfolio, you will also pay no portfolio management commission or administration fees compared to an investment in a dividend fund.

On the flip side, you may need to put in a good amount of time and effort selecting your dividend stock candidates before investing in them.

Dividend Funds

Another way you can invest in dividend stocks is to buy shares or units of a dividend fund.

In other words, through investments like mutual funds such as index funds or exchange-traded funds, you can purchase shares in a “basket” of dividend paying stocks held by the fund.

The main benefit of this approach is that with your investment, you already benefit from the diversification strategy adopted by the fund or index.

By holding the dividend fund, you will receive dividends the same way that you would receive dividends if you had invested in a single stock.

The convenience of purchasing in a basket of pre-vetted stock and a managed portfolio is something that many investors value as they do not have the time or knowledge to handle it on their own.

On the flip side, the portfolio managers or fund managers will take a portion of the returns generated by the fund to cover their administration and management fees.

The fees you pay to the fund managers will chip away at the total return you could have generated by individually investing in the dividend stocks held by the fund.

Dividend Aristocrats

Another way to invest in dividend stocks is to pick stocks called dividend aristocrats.

Dividend aristocrats are companies that have a history of paying dividends year-over-year and having increased their dividend payments for at least decades.

For example, the S&P 500 dividend aristocrats are companies that have paid and increased their dividends over the past twenty-five years, have a float-adjusted market cap of at least $3 billion, and have a daily trading value of at least $5 million.

In essence, when you buy dividend aristocrat stocks, you are buying:

  • Shares of stock that offer consistent and reliable cash flow to their shareholders 
  • Companies that are highly profitable and stable 
  • Are safer investments 
  • Tend to have less price volatility 
  • Share prices steadily grow over time

Dividend Investing Strategy

There are two main types of dividend investing strategies:

  • Investing for dividend yield 
  • Investing for dividend growth 

Investing for dividend yield consists of finding quality dividend paying stocks that offer the highest yield possible (or highest dividend payment to shareholders).

In most cases, you can find dividend stocks with high yields (as compared to their peers) when the stock price drops and the company shares are undervalued.

So you’ll need to be careful about this investment approach and should invest in a stock with a high yield if you know what you’re doing.

Another approach is dividend growth investing.

This is a type of strategy where you buy shares of companies paying dividends and where the dividends are expected to go up over time at a rate higher than the rate of inflation.

In other words, buying and holding on to dividend growth stocks is more profitable the longer you hold on to the shares and earn higher dividend income.

How To Buy Stocks Paying Dividends

Now that I’ve gone over the main strategies to invest in dividend stocks, let’s look at how you should actually go about buying dividend stocks.

Finding A Dividend Stock

The first step in how to buy stocks that pay dividends is to find a quality dividend-paying stock.

Today, with all the information you have available online and on the Internet, it’s quite easy to look up things like:

  • Online dividend stock reviews 
  • Market data offered by your brokerage firm on its website
  • Financial sites 
  • Dividend stock lists 

Once you’ve selected a few stocks, you should then assess them more thoroughly.

Evaluating The Dividend Stock

The next step in buying a dividend stock is to evaluate the quality of the dividend stock candidate you have found.

This means that you need to look at the company in question, certain key financial ratios, and other fundamentals to assess whether or not you should actually invest in the dividend stock.

Some of the important characteristics you should evaluate are:

  • Dividend yield compared to its peers and across industries 
  • Dividend payout ratio 
  • Company’s revenues over time 
  • Company’s future potential

Dividend Yield

It’s important that you don’t just focus on buying stocks with the highest dividend yield. 

The dividend yield represents the percentage of dividend cash flow you are expected to receive as a function of the stock price.

A common “new investor” trap is buying dividend stocks offering a high yield without realizing that the yield has artificially gone up due to a falling stock price caused by poor company performance or financial troubles faced by the company.

Dividend Payout Ratio

Another important element to consider is the company’s dividend payout ratio.

The payout ratio refers to the percentage of a company’s earnings or profits distributed to the shareholders in dividends.

You’ll need to compare the payout ratio to the company’s peers in the industry to see how the ratio compares.

A company that has a high dividend payout ratio is one that pays out most of its earnings in the form of dividends to its shareholders.

Although this can be good for an investor, it can also be a matter of concern if the company is not reinvesting a sufficient amount of money in the business to continue growing.

Dividend Consistently

One of the most important considerations for a dividend investor is the consistency and reliability of the stock’s ability to pay dividends over time.

The idea is to find companies that can pay dividends to their shareholders for many years to come.

As such, you can invest in the stock today and earn a constant stream of cash flow for years and years to come.

This is the beauty of dividend investing as you are able to generate passive income allowing you to build true wealth.

How Much To Invest

Once you’ve analyzed the different dividend stock candidates, another key decision you’ll need to make is how much to invest in the stock.

If you are buying shares or units of a dividend fund, you’ll need to determine how much money you’ll invest in the specific fund.

On the other hand, if you are investing in individual dividend stocks, you may want to decide if you are going to buy shares of one company or will you by buying shares of several companies to further diversify your portfolio.

Buy Dividend Stocks

How to buy dividend stocks online?

The last step in the process of buying dividend stocks is to actually purchase your dividend stocks.

This step requires that you open a brokerage account with the brokerage firm of your choice.

Once your trading account is opened, you will deposit the necessary funds to purchase the number of shares that you need to buy in the stock.

There are many good brokerage accounts that offer you the ability to trade with very low commission (or none at all).

Here are the steps how to buy stocks online:

  • Log into your brokerage account
  • Transfer a sufficient amount of money to your account
  • Enter your stock symbol
  • Enter the number of shares you want to buy
  • Specify your order instructions by selecting trading parameters offered by your account

Once you have done your trade, it will take several business days for the transaction to settle.

And voila! 

You have purchased your dividend stocks.

Track Your Investments

Once you have purchased your dividend stocks, it’s important that you keep an eye on your investment from time to time.

Keep in mind that investing in stocks is a risky proposition.

There’s no guarantee that a stock will perform the way you or your financial advisor may predict. 

To ensure you are protecting yourself from the possibility that a company goes bankrupt or you lose money, you should monitor your investment.

Companies have no obligation in paying dividends.

So if you see that the company could be facing financial troubles and my cut dividends or that other economic factors may affect the stock’s ability to pay dividends in the future, you may want to consider selling off that stock in favor of another one.

How To Buy Dividend Paying Stocks Takeaways 

So, there you have it folks!

How do you buy dividend stocks?

Dividend stocks are company shares that you can buy offering you dividends representing the distribution of business profits to their shareholders.

You can buy dividend stocks by:

  • Purchasing shares of individual stocks that pay dividends and create your own investment portfolio
  • Investing in a mutual fund holding dividend stocks
  • Investing in ETFs focusing on dividend stocks 
  • Investing in dividend aristocrats 

To make the best purchasing decision, you should:

  • Select a divided stock or fund that matches your investing strategy 
  • Look at factors like dividend yield, payout ratio, company’s earnings per share (EPS), company’s price to earnings ratio (P/E ratio), dividend track record, and the company’s ability to pay dividends in the future
  • Decide how much money you want to invest in dividend stocks
  • Purchase your stocks by using an online brokerage account 
  • Consider reinvesting your dividends to increase your returns
  • Make sure you track your investment over time

Good luck with your dividend investments!

Why You Should Join My Passive Income Blog

It’s been great having you on my blog.

Just so you know a little about me!

On this blog, I focus on generating passive income in order to build wealth over time.

Over the years, I have built a portfolio of passive income sources generating me a constant, continuous, and reliable source of cash flow every month (it is awesome!!).

I made a lot of mistakes on the way and learned a lot.

Now, my mission is to teach you my secrets, guide you, and show you how to make passive income for yourself.

I don’t offer a get-rick-fast scheme or I will not make you a millionaire overnight.

However, what I can do is to provide you real and actionable strategies that you (anyone) can implement on any scale (large or small) to make money passively.

If you are willing to dedicate yourself, work hard, and make sacrifices, I can help you change your life around. 

I only focus on tried and true methods for making money and they take time, patience, perseverance, and a lot of hard work.

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If you are looking for financial freedom, make more money, or learn how to earn cash flow from awesome passive income sources, as your first step, sign up for my Passive Income Newsletter. 

When you sign up, I will share with you my exclusive content on passive income, tell you about the tools I use, strategies that I’ve used, what successful entrepreneurs do to make piles of money, and most importantly my actionable tips to get you started!

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If you are ready and willing to commit yourself, come with me and let’s go on a wonderful journey together…

With that being said, let’s head right back to our main topic!

How To Buy Dividend Stocks Summary

  • Buying dividend stocks is a great investment strategy where you buy shares of companies paying dividends 
  • You can buy shares in single companies that pay dividends to create your own dividend stock portfolio or you can buy shares in mutual funds or ETFs that invest in a collection of dividend paying companies 
  • To buy stocks that pay dividends, you must first find the dividend paying stock and evaluate its potential to pay dividends over time
  • Some of the key factors to consider are the company’s dividend payment history, the dividend yield, the payout ratio, earnings per share, Price-to-earing ratio, and fundamentals such as its revenues and future potential 
Average stock market return 
Best brokerage account
Best dividend stocks
Cash dividend 
Convertible preferred stock dividend
Dividend aristocrats 
Dividend blog 
Dividend capture strategy 
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Dividend tax
Dividend yield 
Dividends per share 
Do all stocks pay dividends
Earnings per share
Gordon growth model 
Growth investing
High dividend stocks
How to invest in stocks 
How to research stocks 
Index funds 
Payout ratio
P/E ratio
Qualified dividends
Roth IRA
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Dividend passive income
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Passive income generator 
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Passive Income Meaning
Passive Income Strategies
Passive income types 
Residual income 
Rich vs wealthy 
Unearned income
What is passive income

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