Best Investment Strategies on Stock Dividends

You must have heard a lot about strategies for investments in dividend. The process involves buying some shares of a particular firm or company and waiting till you further move on to buy more. For investors, dividend investment is a money making opportunity. Dividends offer buyers an ongoing stream of income while the capital increases overtime. Dividend per share grows gradually and over time it brings excellent growth opportunities for the investors.  

How Investors Can Identify High Dividend Stocks? 

If you’re an investor heading for dividend investing in high paying stocks, following are some ratios recommended by A2 Finance that you need to consider: 

Dividend Yield: 

Dividend yield is paid by a company as dividend each year against its stock prices. Higher dividend yield means the company has paid out a higher dividend to investors.

Payout Ratio:  

The term indicates the amount of dividend paid to the investors against the net income that a company generates.

Cash Dividend Payout Ratio: 

The term comprises an amount usually a proportion of cash flow that a company pays to its stockholders after dividend is paid to shareholders. The ratio helps Investors to assess dividend sustainability.

Total Return: 

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Total return combines the sum of capital gains and dividends paid by the company. The amount tells the money earned. It includes an overall increase in share prices and dividend.

 

Dividend Investment Strategy:

When it comes to portfolio management, dividend investing is a crucial part of it. The strategy allows investors to reinvest their cash dividend in additional shares. They can also make investment in some shares of the underlying stock. 

The investment can be done on the dividend payment date. Dividend investing gives sustainable results if the investment is for long term. This is because in long term returns that shareholders earn is compounding. As dividends grow up, investors earn more. 

Following are the quick divided investment strategies recommended by that you can apply to earn from stock dividends: 

 

  • Buy dividend stocks from reputed and large cap companies only. These companies increase their dividends substantially irrespective of the inflation. 
  • Hold the dividend stocks for longer duration to get the benefits of deferred taxes 
  • Choose diversified stocks from different industry niches. It helps to prevent fluctuation if investments are focused in a single area. 
  • Another good strategy is buying stocks from different countries. In this way you can get dividends in multiple currencies.

 

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 Benefits of Dividend Investing: 

Investing in dividends is a sustainable and consistent source of income for individual shareholders. The amount earned can be reinvested in the stock market for higher returns. Since dividends are offered by large cap companies with strong markets, risk factors are reduced at extent. Even in unprecedented market conditions the price of a stock doesn’t affect the company’s dividend paying abilities.

Disadvantages of Dividend Investing: 

The downside of dividend investing is that there is no way to earn gains from dividend paying stocks. No company is bound to pay a dividend to the investors. It’s the company’s decision to pay a dividend if it is reaping substantial profits out of their business. 

 

Disclaimer: This content does not necessarily represent the views of IWB.

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