Before you buy any dividend stocks, it's important to know how to evaluate them. These metrics can help you to understand how much in dividends to expect, how reliable a dividend might be, and, most importantly, how to identify red flags. Inexperienced dividend investors often make the mistake of buying stocks with the highest dividend yields. While high-yield stocks aren't bad, high yields are typically the result of a stock's price falling due to the risk of the dividend being cut.
That's a dividend yield trap. Sadly, a yield that looks too good to be true often is. It's better to buy a dividend stock with a lower yield that's rock solid than to chase a high yield that may prove illusory. Moreover, focusing on dividend growth -- a company's history and ability to raise its stock dividend -- often proves more profitable.
While most dividends qualify for the lower tax rates , some dividends are classified as "ordinary" or non-qualified dividends and are taxed at your marginal tax rate. Several kinds of stocks are structured to pay high dividend yields and may come with higher tax obligations because of their corporate structures. Of course, this extra tax burden doesn't apply if your dividend stocks are held in a tax-advantaged retirement plan such as an individual retirement account IRA ,with the caveat that investing in MLPs can sometimes leave you owing taxes even on your IRA.
If you're a long-term investor looking to expand your nest egg, one of the best things to do is use a dividend reinvesting plan , also called a DRIP. This powerful tool will take every dividend you earn and reinvest it -- without fees or commissions -- back into shares of that company. This simple set-it-and-forget-it tool is one of the easiest ways to put the power of time and compounding value to work in your favor.
If you're building a portfolio to generate income today, it's important to remember that paying dividends isn't obligatory for a company in the same way that companies must make interest payments on bonds. That means that if a company has to cut expenses, the dividend could be at risk.
With this in mind, it's important to structure your income portfolio with a margin of safety and to diversify across companies with different risk profiles.
One way to effectively mitigate risk in your portfolio is by investing in a dividend-focused exchange-traded fund ETF or mutual fund. These fund options enable investors to own diversified portfolios of dividend stocks that generate passive income. You cannot completely eliminate the risk of a dividend cut, but you can lower the risk to ensure that you generate enough income to meet your needs.
If stable income is your goal, then focusing on high-quality companies with strong records of dividend growth is far more advisable than buying high-yield stocks that may turn out to be traps. Discounted offers are only available to new members. Some high-dividend stocks may be facing a particular business challenge and researching that issue thoroughly can help identify an attractive investment. But for most investors, dividend funds should be a safer approach.
Dividends can have a big impact on your portfolio over time. They can help generate income during retirement or earlier and can also be reinvested to increase your total investment return.
Consider owning dividend-paying companies through a low-cost fund or ETF in a tax-advantaged account as part of your long-term investment plan. Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
How We Make Money. Editorial disclosure. Brian Baker. Written by. Bankrate reporter Brian Baker covers investing and retirement. He has previous experience as an industry analyst at an investment firm.
Baker is passionate about helping people …. Edited By Brian Beers. Edited by. Brian Beers. Brian Beers is the senior wealth editor at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Reviewed by. Kenneth Chavis IV. Share this page. Bankrate Logo Why you can trust Bankrate.
Bankrate Logo Editorial Integrity. Key Principles We value your trust. Bankrate Logo Insurance Disclosure. How dividend stocks work In order to collect dividends on a stock, you simply need to own shares in the company through a brokerage account or a retirement plan such as an IRA. Read more From Brian. Baker is passionate about helping people make sense of complicated financial topics so that they can plan for their financial futures.
About our review board. You may also like Dividend stocks: What they are and how to invest in them. Dividend stocks: What they are and how to invest in them. United States.
United Kingdom. Miranda Marquit, Benjamin Curry. Contributor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
Getty Images. Was this article helpful? Share your feedback. Send feedback to the editorial team. Rate this Article. Thank You for your feedback!
Something went wrong. Please try again later. Best Ofs. More from. By Kat Tretina Contributor. Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances.
We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results. Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available.
Miranda Marquit Contributor. Benjamin Curry Editor. The Forbes Advisor editorial team is independent and objective. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site.
This compensation comes from two main sources. First , we provide paid placements to advertisers to present their offers.
This site does not include all companies or products available within the market.
0コメント