When most people think about investing, they picture their money slowly growing over time through stock price increases. But did you know there’s another way to make money from your investments while you’re holding onto your stocks? It’s called earning dividends! Think of it as getting paid just for owning certain companies’ shares, on top of whatever growth they might see in stock price. Pretty sweet, right?
In this guide, we’re going to dive into the world of dividend-paying stocks, how to find the good ones, and why it’s worth considering them for your portfolio. So, let’s get started!
What Are Dividends? 👀
A dividend is essentially a reward that a company gives to its shareholders. When a company makes a profit, instead of reinvesting all of it back into the business, it might decide to share some of that profit with people who own shares in the company - aka shareholders like you! These payouts are called dividends.
They can be paid out in cash, or sometimes in additional shares, but the most common form is cash dividends. Most companies pay these dividends on a quarterly basis (every three months), but some pay more frequently, which we’ll talk about later.
Dividends are a way for companies to reward loyal shareholders, and they can be a great source of passive income for investors who like to see money rolling in regularly while they wait for their investments to grow.
How to Find Promising Dividend Stocks 💸
Not all stocks pay dividends, and among those that do, the amount they pay can vary a lot. So, how do you spot the stocks that will give you a good return?
There are a few key metrics to check when you’re hunting for dividend-paying stocks:
- Dividend Yield: This is a key figure that tells you how much a stock pays in dividends compared to its current share price. You calculate it by dividing the annual dividend per share by the stock’s current price. A higher yield means a higher dividend payout in relation to the stock price.
- Payout Ratio: This tells you how much of a company’s earnings are being paid out as dividends. It’s calculated by dividing the dividend by the company’s net income. A payout ratio over 100% means the company is paying more in dividends than it’s earning, which could be unsustainable over time.
- Dividend Growth: Look at whether the company has been steadily increasing its dividend over the years. Consistent dividend growth is a sign that a company is healthy and committed to sharing profits with investors.
Dividend Kings 👑
When you’re looking for solid, reliable dividend stocks, you’ll want to check out companies that have not only paid dividends consistently but have increased those payments year after year. These are often large, well-established companies with steady profits - making them safer bets in the long term.
Stocks like these are sometimes called “Dividend Aristocrats” if they’ve not only paid but increased dividends for at least 25 consecutive years. If they keep it up for 50+ years, like our two examples below, they graduate to the elite status of “Dividend Kings.” These companies are sometimes considered safer, long-term plays for income-seeking investors.
Two great examples of companies that have increased their dividend payouts for over 50 years are Johnson & Johnson and PepsiCo.
- Johnson & Johnson (JNJ): This health care giant has been described as one of the most reliable dividend stocks on the market, and its steady revenue from a diverse range of products makes it a popular choice for dividend investors. Johnson & Johnson’s dividend yield, at the time of writing is 2.88%.
- PepsiCo (PEP): Known for its drinks and snacks, PepsiCo is another dividend powerhouse, offering a dividend yield of 3.62%. The company has been growing its dividend payments every year for 52 years. PepsiCo’s consistent growth and strong market presence make it a great option for those looking for stable, long-term dividend income.
High Dividend Payout Stocks 🌡️
While some companies offer steady, reliable dividends, others dangle extremely high dividend yields - but with more risk. These companies may offer a tempting return, but they could be more volatile.
Here are a few stocks currently offering very high dividend payouts:
- Icahn Enterprises (IEP): With a very high dividend yield of 22.68%, Icahn Enterprises is attractive to dividend hunters. And what’s more, at the time of writing in September 2024, the stock price of Icahn Enterprises is predicted to increase by a massive 84.91% in the next 12 months.
- Oxford Lane Capital Corp (OXLC): A closed-end fund that invests in collateralized loan obligations (CLOs), Oxford Lane offers a jaw-dropping dividend yield of 18.1%. The price of Oxford Lane Capital Corp is predicted to grow by 14.94% in the next 12 months.
- Star Bulk Carriers Corp (SBLK): A shipping company specialising in the transportation of dry bulk cargo, Star Bulk Carriers has benefited from high shipping rates. It offers a high dividend yield of 8.63%. In the next 12 months, analysts predict the price of this stock will rise by 34.83%.
High yields can be enticing, but it’s important to weigh the risks. These stocks may generate big payouts now, but there’s always a chance that their dividends could be cut if the companies face financial struggles.
More Frequent Dividends 🔂
Most dividend-paying companies follow a quarterly payout schedule, but a few pay their dividends on a monthly basis. This is great for investors looking for regular income - like having a paycheck!
Examples of companies that pay monthly dividends include:
- Realty Income Corporation (O): Known as “The Monthly Dividend Company,” Realty Income is a REIT that has paid monthly dividends for decades. Right now, the dividend yield is 4.9%.
- Stag Industrial (STAG): Another REIT, Stag Industrial also pays out monthly, offering steady income for its investors. The dividend yield at present is 3.69%.
While monthly dividend payers are rare, they’re a great option if you prefer more frequent payouts to help cover your monthly expenses.
The Ex-Dividend Date 📅
If you’re planning to invest in dividend-paying stocks, it’s important to understand the ex-dividend date. This is the cut-off date to qualify for the next dividend payment. If you buy a stock on or after the ex-dividend date, you won’t be eligible for the next dividend payment.
For example, if a company has an ex-dividend date of 15 September, you need to buy the stock before that date to receive the upcoming dividend. If you purchase it too late, you’ll have to wait for the next payout cycle.
To make sure that you get the payout, it’s best to have bought the stock at least one day before the ex-dividend date - if you buy it on the date itself, you run the risk that your purchase is still being processed, so that you aren’t counted among the investors when the payment is made. So for our hypothetical stock with a payout date of 15 September, people who bought stock on 13 September or 14 September at the latest will have set themselves up well to get that bread.
Wrapping Up 👍
Dividend-paying stocks can be an excellent way to build wealth while generating passive income. Whether you’re looking for reliable, long-term payers like Johnson & Johnson and PepsiCo or want to chase high yields with stocks like Icahn Enterprises, there’s a range of options for every type of investor.
Just remember, the key is to do your research. Keep an eye on the dividend yield, payout ratio, and dividend growth to ensure you're making smart decisions. And always be mindful of your risk tolerance - while high dividends are tempting, they may come with more volatility.
With Nemo, you can easily explore and invest in dividend-paying stocks, tracking your payouts and finding the right companies to help your money grow. Why wait? Get started today, and watch those dividends roll in!
At Nemo Money we gather together stocks into nemes where you can find handpicked stocks based on similar characteristics. Try our ‘High Yielding Stocks’ neme, ‘Top Dividend Paying Stocks’ or even our ‘Dividend Deadlines’ neme, which updates every week to tell you when upcoming ex-dividend dates will be.
Start your investment journey today with Nemo Money. To welcome new users, everyone who registers receives a 50% registration bonus - whatever you top up your account with, we will add 50% of that for you to invest however you like, up to a maximum of $50. Terms and conditions apply. Happy investing!
All stock information is correct at the time of writing.
