For those who are serious about building wealth, identifying which stocks pay dividends is a great place to start. Keep in mind that in order for investors to get the most out of a dividend investment strategy, they will need to have a long-term approach.
If you’re new to the world of investing, you may not be familiar with the term “dividends”. Dividends are payments granted to shareholders and distributed by companies on a regular basis, based on the company’s profits over time. For example, some dividend shares have payments every quarter, while others are paid monthly or annually.
Dividends are one of the many ways companies encourage investors to buy their shares. This provides value to shareholders in the form of dividends and value to the company in the form of increased investor interest. You will usually see this with companies that have been around longer and have strong financial stability.
How to invest and reinvest in dividend stocks
Once you’ve identified which stocks pay dividends, you can start creating a rich portfolio that generates regular payments. There are many ways to buy dividend stocks. Funds such as mutual funds and ETFs are a great option as some of them have dividend stocks. Alternatively, you can purchase each stock individually.
Once you have purchased the shares, you can expect regular dividend payments. However, some considerations need to be taken into account when evaluating shares that pay dividends. Dividend payments can occur in a number of ways. Cash dividends are an option and are by far the most common form of dividend payment.
However, you should be aware that cash dividend payments are taxed and therefore their total value is reduced. Alternatively, some companies pay dividends in the form of additional shares. However, some dividends are given in the form of property. In this case, investors would receive a tangible asset or product instead of cash or shares.
The power of compound interest
Receiving a cash dividend payment can be exciting. However, instead of simply collecting these dividend payments, many diligent shareholders choose to reinvest their dividends in more shares. Some companies offer to reinvest your dividends. However, if the company does not offer this, you will simply have to wait for the cash payment to be made. You can then contribute this amount to buy more shares, if you wish.
As time goes on, compound interest will allow you to buy more and more shares of the stock, which can be extremely lucrative and allow you a comfortable retirement.
Dividend investing is the biggest wealth creation tool I know in the markets, especially for long-term investors. – Marc Lichtenfeld, revenue expert
For more information on how a dividend reinvestment plan can create growth through compound interest, see our Dividend Reinvestment Calculator.
However, if you are a dividend investor who continues with your savings, you may choose to use these dividend payments as a form of passive income. This is called passive investment in income dividends. If you follow this route, you should consider companies that are considered “dividend aristocrats.” An aristocrat dividend is a company that has increased its dividend consecutively for the past 25 years.
How do you know which shares pay dividends?
Stock exchanges, investment websites, the SEC (Security and Exchange Commission) website, and brokerage platforms are just some of the places where investors can find which stocks pay dividends. Dividend investment has been around for hundreds of years. The Dutch East India Company (VOC) was the first registered (public) company to pay dividends regularly, in the early 1600s.
In fact, about 84% of S&P 500 companies pay dividends. But how can investors know not only which shares pay dividends, but which dividend shares will produce the best overall returns? To do this, we turn to an expert …
Marc Lichtenfeld, an income expert, has made a career out of finding the best dividend stocks on the market. His best-selling book, Get rich on dividends: A proven system for double-digit returns, was named Book of the Year by the Institute of Financial Literacy.
Every Wednesday, the Security Network’s Framework column examines a specific stock to determine the security of its dividend and predict future dividend cuts. With its owner t00l, SafetyNet Pro, helps readers predict some dividend cuts before they occur.
Throughout history, finding large dividend companies that increase payments each year has been one of the great ways to generate wealth. And with so many cheap dividend stocks, I expect them to significantly outperform 2021. – Marc Lichtenfeld, income expert
What shares pay dividends? Here are some to get you started
Currently, the following shares pay a dividend. Keep in mind that you will want to keep up to date with each of these financial resources. This goes for any other investment you have in this regard. Continuously rising dividend payments are a strong indicator that the company is in a good financial position.
Some people reading this may wonder “where are all the extremely high dividend yields?” While high-yield payments may seem appealing, experienced investors know how to look at the big picture. A high-yield dividend could become a no-return if the company cannot continue to make payments. You’ll want to keep track not only of performance … but of the payment and consistency of specific dividend-paying stocks.
Johnson & Johnson (NYSE: JNJ) – Dividend yield: 2.6%
McDonalds (NYSE: MCD) – Dividend yield: 2.2%
AT&T (NYSE: T) – Dividend yield: 7.2%
The Clorox company (NYSE: CLX) – Dividend yield: 2.7%
IBM (NYSE: IBM) – Dividend yield: 4.5%
Ternium (NYSE: TX) – Dividend yield: 6.2%
Exxon Mobil (NYSE: XOM) – Dividend yield: 5.5%
UGI Corp. (NYSE: UGI) – Dividend yield: 3.0%
The Procter & Gamble Company (NYSE: PG) – Dividend yield: 2.6%
Duke Energy Corp (NYSE: DUK) – Dividend yield: 3.8%
Home Depot (NYSE: HD) – Dividend yield: 2.1%
Chevron Corporation (NYSE: CLC) – Dividend yield: 5.0%
PepsiCo (Nasdaq: PEP) – Dividend yield: 2.9%
More resources on dividend shares
Want to know more about which shares pay dividends? Check out the links below for more opportunities and tips.
10 shares of high capitalization of high dividends to be considered in 2021
How a Dividend Reinvestment Plan (DRIP) works and composes wealth
4 monthly dividend ETFs for income portfolios
How investing in DRIP can transform your retirement
10 shares with high returns in 2021
Do you still need help finding the right dividend-paying stocks?
As a reminder, dividends are not a guarantee. They can be reduced or cut completely at any time, without notice. But if you invest in the right companies, dividends can continue to be paid for decades. A compound interest will help increase the value of your investments and can provide much needed stability to your portfolio.
Another important consideration is when to sell. If you sell your shares before the “ex-dividend date”, the company it will not pay you a dividend for that period of time. The ex-dividend date or “ex-date” is the date on which the shares begin to trade without the value of the next dividend payment.
Again, it is often a good idea to reinvest your dividends. While a quick payment seems tempting, it is prudent to think long term. Your retirement savings and the future will thank you for the extra funds. Now that you know better what stocks pay dividends, you have one of the most valuable tools for creating wealth. To learn more about building a sustainable dividend reinvestment plan that works, sign up for free Rich retirement email today!
About Ben Broadwater
Ben Broadwater is the director of Investments U. He has over 15 years of experience in content creation. He has worked and written for numerous financial publishing companies, including Charles Street Research, The Oxford Club and now InvestmentU. When Ben is not busy with InvestmentU, you can usually find him with drumsticks or a guitar in his hand.