A dividend investor is someone that focuses on building an investment portfolio using stocks or other investments that pay dividends. Each person may use a different set of criteria to decide which stocks or investments to buy.
One dividend investor might focus on stocks that have a dividend increase history of more than a certain number of years. And another investor might want stocks that have a dividend yield within a certain range.
Or maybe other criteria includes the sector or industry of the companies. Yet another investor may focus on stocks that pay in certain months to build a monthly dividend portfolio.
Ultimate the underlying requirement is that the stocks pay dividends on a regular basis. The rest becomes filter criteria to help narrow down the choices. If you’ve looked at the stock market lately, there’s a lot of choices and it’s easy to get stuck in analysis paralysis and not take action if you decide dividend investing is the right strategy for you.
One quick note I should mention. I’m not a financial planning professional. I’m sharing what’s working for me as part of my investing strategy. Always do your own research and consider your own circumstances before making any financial decisions. You could also check with your favorite financial professional to understand what would be best for your situation.
Choosing an investment strategy is a personal decision and you’ll need to decide what your goals are to figure out if dividend investing makes sense for you. As with any strategy you’ll find people that love it and others that think it’s not the best.
And one other thing to consider with dividend investing is that you’ll need money to get started. Unless someone gifts you the shares, you’ll need to buy stock in the company in order to receive future dividend payments.
What is a dividend payment?
A dividend payout when a company distributes cash or shares to the stockholders as either a portion of earnings or other reserves. For companies that pay dividends, it most often quarterly and in the form of cash.
Each shareholder receives a dividend payment based on the number of qualifying shares multiplied by the per-share amount the company set.
For example, if the company decided to pay $.25 per share and you own 100 shares, you’d receive a dividend payment of $25.
In order to qualify to receive the payment, you would have had to own the shares prior to the ex-dividend date, meaning excluding dividends. If you look at the stock’s dividend payment history you’ll be able to estimate the pattern for the company. It can be anywhere from a few days before the payment to a month or more.
What do dividends mean to an investor?
Dividends mean another stream of income to an investor and in this case passive income. And as with most income, dividends are not usually free income. Depending on the type of account the shares are held in, it may be taxed.
For an investor, building passive income means you make money while you sleep. You should keep an eye on your portfolio and the news around the stocks you hold, but it generally doesn’t require the level of activity that your regular 9-5 job requires.
And if you reinvest the dividends each payment, your portfolio can snowball into larger earnings in the future.
Is dividend investing safe?
No dividend is 100% guaranteed until it’s actually paid. As with any investment, there are risks. That being said, research and strategy can reduce your risk. Look for healthy companies with long histories of paying dividends to build a safer dividend portfolio.
Ultimately you’ll make decisions based on the information you have at the time because unfortunately none of us has a magic crystal ball that predicts the future with 100% certainty.
Carefully curating a diversified portfolio of dividend stocks also helps create a safer investing strategy.
Wrapping up, what is a dividend investor. What is your plan?
Dividend investing is one approach to building an income-producing portfolio of stocks. With a dividend income portfolio, you can receive passive income regularly that grows over time. Choosing to focus on being a dividend investor is a personal choice, and you’ll see arguments both for and against using this strategy.
What other questions do you have about focusing your investment portfolio on dividends?
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