What Is a Dividend? A Simple Explanation + 4 Tips

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What Is a Dividend? A Simple Explanation + 4 Tips

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Dividends can provide income and growth for Long-term investments. In addition, Many times, there Will be options to reinvest dividends back into the same company automatically.

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Four Companies That Pay Dividends

- Walmart - Exxon Mobil - PepsiCo - Procter and Gamble

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Dividend Tax Benefits

Dividends can have tax benefits for both the shareholders and the company giving them out. For the company, by giving part of their profits to shareholders, they won't be taxed on that money, therefore paying less in taxes.

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Find Companies With Strong Track Records

When it comes to dividend investing, find companies with solid track records, meaning they are well established and have high market values. Small companies don't typically pay dividends.

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Find Sustainable Dividends

Remember that payout ratio mentioned earlier? Make sure you find a company that has a payout ratio in the 30% – 50% range as anything higher could be unsustainable, and anything lower means the company is more focused on growth than paying out dividends.

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Annual increase streaks

The four dividend stocks noted earlier that they all have a long streak of annual dividend increases.

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The rule

The rule for any investor should be to diversify, so dividend stocks certainly should have a share in your portfolio, but don't strictly rely on them. If you're simply chasing dividend yields, you may be missing out on the big picture or investing in a company that can't sustain those yields.

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Always reinvest dividends

Each time you reinvest your dividends, you're buying just a bit more stock than the time before. So earning you more in dividends allows you to buy more stock, you see where this is going? Always reinvest.

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Swipe up to read more on what is a dividend? A simple explanation + 4 tips!

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