This is a guest contribution by Jonathan Green of Serve No Master
Are you looking to invest in companies so that you can earn passive income at a sustainable growth rate? Consider adding dividend stocks to your investment portfolio. A stock dividend is a sum of money distributed to shareholders from a company’s profits. Investors are compensated for their stock ownership by the company they own.
Essentially, you’re earning money by doing nothing. Isn’t that great?
To make the best investment decisions while investing in dividends, thorough stock research is required – okay, so maybe you have to do something, but that’s only in the beginning!
These dividend stocks typically provide regular dividend payments, though the frequency varies depending on the stock. To learn how to buy your first dividend stock, keep reading.
How to Buy Your First Dividend Stock
The procedure for buying dividend stocks is quick and easy, even if you’ve never bought stocks online before.
This guide demonstrates how to purchase dividend stocks using eToro, the industry’s top broker. eToro’s website is user-friendly and offers thousands of stocks at zero percent commission.
Step 1: Open and Verify an eToro Account
Creating an eToro trading account is straightforward and starts with clicking the “Join Now” button. A registration form pops up where you must select a username and password.
Before hitting the “Create Account” button, read and agree to the terms and conditions and enter your email address.
Next, you must provide some basic personal information. Your name, country, social security number, birth date, and residency status are all required.
Make sure you enter the necessary information accurately because you will be requested to provide identification in the following step to confirm it.
Let’s move on the verifying your account, which involves uploading your ID. The KYC procedure at eToro can be finished in less than two minutes if you have the required documentation on hand.
To move on, you need two documents:
- You can use a bank or utility statement from the last three months as proof of residency (they accept other documents as well)
- Identity documentation, such as a driver’s license, passport, or state identification
Make sure your identification is still valid.
Step 2: Deposit Funds and Find a Dividend-paying Stock
At eToro, you must first deposit money before purchasing dividend stocks. The required minimum deposit is $10, which is reasonable.
If you want to buy dividend stocks immediately, the quickest payment option is a debit or credit card. In general, e-wallets such as PayPal are also handled quickly.
You might need to wait one to three working days for the money to arrive if you use a domestic bank wire or ACH.
However, there are no costs if you deposit US dollars into your eToro account.
eToro offers thousands of US and foreign stocks; therefore, using the search box is the quickest way to invest in the dividend-paying company of your choice.
Along with your online broker’s website, there are several financial websites where you can search for stocks that pay dividends. A few of the high-dividend stocks in the US, according to annual dividend yield are:
- Altria Group: 6.66%
- ONEOK Inc: 5.68%
- Universal Corp.: 4.96%
- Lamar Advertising Co: 4.90%
- Philip Morris International: 4.71%
- National Bankshares Inc: 4.48%
Click “Trade” when you see the dividend stock you want to buy.
Step 3: Consider the Dividend Aristocrats
Investors pursuing dividends can search for high-yield stocks such as those featured above; however, there is another aspect of dividend-investing to think about: consistency. This is crucial for fixed-income investors in particular. The Dividend Aristocrats shine in this area.
Selected S&P 500 companies are included in the market index known as the S&P 500 Dividend Aristocrats. In order for a company to be considered:
- Its dividends must’ve increased annually for the previous 25 years
- Have a minimum $5 million daily trading value on average
- Have a market worth of at least $3 billion after float adjustment
According to the index’s methodology, each sector can only make up a maximum of 30% of the index’s weight, and at least 40 companies must be included.
What does this entail for investors? The index may provide increased diversification than other high-yield stock indexes because The Dividend Aristocrats are substantial corporations with consistent dividend payments and significant liquidity (which are generally more geared toward the utilities and financial sectors).
There are ETFs with comparable criteria in terms of reliability, or individuals can choose individual Dividend Aristocrats to invest in. The High-Yield Dividend Aristocrats index on the S&P 500 is another option and uses somewhat different standards.
Step 4: Evaluate the Stock
Compare the dividend yields of a high-dividend company’s competitors before digging deeper into the stock you’re interested in. It could be a warning sign if a company’s dividend yield is significantly greater than that of comparable firms. It’s worthwhile to do more research about the business and the dividend’s security.
The stock’s payout ratio will show you the percentage of the company’s revenue allocated to dividends. A high payout ratio – typically above 80%, although it varies by industry – indicates that a significant portion of the company’s profits is going toward dividend payments.
A dividend payout ratio can occasionally reach 100%, which indicates that the business may be incurring debt financing to pay dividends. When debt is incurred to cover equity, this increases the financial risk of the particular company, which has advantages and disadvantages.
The advantage is that the company often pays out higher dividends to shareholders to compensate them for the additional debt incurred. However, the downside is that capital and interest risk are increased, which can negatively impact the firm’s financial position if it fails to meet its debt repayments.
Step 5: Determine How Much Stock to Buy and Buy it
You must decide what percentage of your investment portfolio is invested in each stock if you plan to acquire individual equities since you need diversification – for example, you might invest 7% of your portfolio in 20 different stocks. If the dividend stock carries a higher risk, you might purchase less of the stock and allocate more funds to safer investments. You must recalculate the price you initially paid for the stock if you intend to reinvest the dividends.
The security of a dividend is the main factor to take into account when purchasing a dividend investment. Dividend rates over four percent should be examined carefully, while yields over 10% are considered to be riskier.
A dividend yield that’s too high may, among other things, be a sign that the ROI is unstable or that investors are offloading the stock, which would raise the dividend yield and lower the share price.
Another point to consider is that, unlike equities that do not pay dividends, which are taxed mostly upon sale, taxable broker accounts that consist of dividends cause tax to be incurred in the year of assessment the dividends accrue. Dividend stocks don’t offer the same tax benefits that other choices for individuals with high-income levels and taxable accounts do, such as debentures (debt financing).
FAQs
How Do I Buy Dividend Stocks?
Open an account with eToro if you want to buy dividend stocks with low costs. Next, fund your account with a deposit and look for the dividend stock that appeals to you. Then, indicate your desired investment amount and confirm the order to quickly buy your preferred dividend stock.
Are you interested in learning how to use your dividend returns to generate more money? Consider investing your returns into your very own small business. Here are 201 small business ideas to consider.
How Much Does it Cost to Purchase Dividend Stocks?
Checking the broker’s fee table is essential when buying dividend stocks from a particular broker. Before creating an account with an online broker, we advise checking for the following fees:
- Commissions
- Funding charges
- Spreads
Summary
Dividend stocks provide the ideal mixture of steady growth and consistent income, whether you’re a stay-at-home mom looking for extra cash or a high-profile entrepreneur.
With eToro and other brokers, you can invest in domestic and international businesses starting at just $10 without having to pay a trading commission.
Create an account and make a deposit to get started. Next, choose the dividend stocks you want to purchase and enjoy the returns.
About the Author
Having helped over 5,000 people launch their first online business from a small tropical island in the South Pacific, Jonathan Green’s mission is to help the next generation of entrepreneurs to escape the 9-5 and Serve No Master.
Other Dividend Lists
The following lists contain many more high-quality dividend stocks:
- The Dividend Aristocrats List is comprised of 65 stocks in the S&P 500 Index with 25+ years of consecutive dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 44 stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Complete List of Russell 2000 Stocks
- The Complete List of NASDAQ-100 Stocks
