If you’re looking for an investment option that offers you regular returns, you may want to take a deep look at dividend stocks.
Dividend stocks offer returns and reliable dividends to investors on a regular basis. You can usually expect to receive a set amount of money each year. The top dividend stocks increase their dividend payments on a regular basis.
Well-established companies often offer the best dividends. Let’s take a look at several ways to invest in dividend stocks, how to invest in dividend-paying stocks and the best dividend stocks on the stock market. You may want to put more than one on your list.
63 Top Dividend Stocks
Take a look at the top dividend stocks on our list, the list of Dividend Aristocrats from MarketBeat and each stock’s current dividends. (The Dividend Aristocrats are companies that have increased their dividend yield for 25 consecutive years, signifying significant strengths compared to many other dividend stocks.)
Learn more: Dividend Kings vs. Aristocrats
Ways to Invest in Top Dividend Stocks
It’s important to note that you don’t just have to invest in individual stocks — you have other options. When you invest in a single company’s stocks, you invest your money in that one company. For example, if you invest in 100 shares of Tesla, you buy only shares of Tesla stock.
You can invest in dividend stocks through mutual funds (including through index funds or exchange-traded funds (ETFs). These might hold dividend stocks in their respective “baskets.” Let’s take a quick look at the definition of each of these investment types:
- Mutual funds: A mutual fund is a professionally managed portfolio — a bundle of stocks, bonds or other income vehicles — that gets invested through a specific strategy or asset class.
- Index funds: An index fund is a type of mutual fund or exchange-traded fund (ETF) that tracks the returns of a market index such as the S&P 500 Index and the Russell 2000.
- Exchange-traded funds (ETFs): An exchange-traded fund (ETF) is a basket of securities that tracks an underlying index. ETFs can contain investments such as stocks and bonds and trade at any time during the trading day, like a stock.
Which option works best for you? Take a look at the first step of the next section to determine your investment goals.
Learn more: Dividend stocks vs. index funds
How to Invest in Top Dividend Stocks
Knowing that there are a variety of ways to invest in dividend stocks, how do you get started? Let’s take a quick look at the steps you’ll need to take to make it happen.
Step 1: Determine your investment goals.
What are your specific investment goals? Do you want to make sure you benefit from dividend increases in a diversified portfolio? Do you want dividends to help you pay for everyday expenses right now, such as rent or everyday expenses?
Or maybe you want to use dividend stocks to serve as your retirement nest egg someday.
The right type of investment for you depends on your investment time horizon, risk tolerance and cash flow needs. For example, let’s say you need to tap into the money in five years. You might consider every angle of each one of these investments to determine your best route. If you need them later on — say, during retirement, you might want to opt for a different type of monthly dividend stock. It all depends on your specific needs and the diversification options, growth rate, interest rates, regular dividends, total return and more. (However, remember that past performance does not determine future performance.)
Step 2: Evaluate dividend yield and dividend growth.
What’s dividend yield? The dividend yield is a financial ratio that shows you the percentage of a company’s share price that it pays out in dividends each year. In order to zero in on the right high dividend stocks for your portfolio, it’s a good idea to consider the dividend yield of all of your potential dividend investments. The dividend yield will help you determine the dividend growth potential of your future investments.
Here’s the formula to discover the dividend yield of a particular dividend stock:
Dividend Yield = Annual Dividend Per Share / Stock Price Per Share
In other words, let’s say a company offers an annual dividend of $1.50 and the stock trades at $40. In this case, the dividend yield is 3.75% ($1.50/$40).
Step 3: Look at the fundamentals.
Look beyond what’s trending in the news. Don’t forget to look at the fundamentals of each type of company you may want to add to your portfolio. Beyond the dividend payout ratio, you should also look at the company’s annual letter to shareholders, balance sheets, SEC filings, quarterly earnings updates and recent news for more information.
Furthermore, take a look at the company leadership. How much experience does each company leader have? If a certain CEO has had decades of experience running various health care companies, they may have higher qualifications of running a particular health care organization that you’re considering investing in.
You can also look at the two fundamental metrics:
- Price-to-earnings (P/E) ratio: A company's price-to-earnings ratio, or the ratio of a company’s current stock price to its total profit (or "earnings") per outstanding share. In other words, if a company’s stock sold for $45 and it had a profit of $3 per share, its P/E ratio would be 15. The higher this ratio, the more confident investors are about a company. Typically, you want to look for a range of about 14 to 20. Anything higher, and it could indicate an overvalued stock.
- Debt-to-equity (D/E) ratio: How much debt does a company have compared to its total assets? The D/E ratio can calculate this, which means you divide the company's total liabilities by its total assets. For example, a company with $200,000 in liabilities and $1 million in cash and other assets would have a D/E ratio of 0.2.
Step 4: Invest in the dividend stock(s) of your choice.
By now, you should know whether you’re planning to go for natural gas stocks or healthcare stocks or another type of dividend stock altogether. Your brokerage will prompt the number of shares you want to purchase. Next, choose your order type.
If you don’t already have a brokerage account set up, it’s easy to set up an account online. If you’re not comfortable going the semi-DIY route with a robo advisor, you may want to consider meeting with a financial advisor to help you. You’ll need to provide basic information, such as your name, address, bank account information and your Social Security number (to verify your identity). Then, you’ll choose your order type:
- Market order: A market order means you purchase or sell your stock at the best available price.
- Limit order: A limit order means you request to buy or sell at a specific price or better.
- Stop-loss order: Once a stock gets to a certain price, a market order kicks in and the order is filled at that price.
- Stop-limit order: Once a stock reaches the stop price, the trade goes into “limit order mode” and fills up to the specified price limits.
Once you’ve purchased, monitor your stocks for volatility and whether they’re still meeting your needs.
You don’t have to invest in individual stocks to take advantage of top dividends. You can also invest in mutual funds, index funds and ETFs. The most important thing you can do is look beyond what’s trending and take a look at how various stocks might impact your portfolio in various ways.
Whether you put a premium on diversification or valuation of individual companies, you want to make sure your dividend stocks work in your favor. Look at a wide variety of options before you sink your money into the stock market dividends.