What is dividend paying stocks?
In short, a dividend paying stock refers to a company’s shares that give their shareholders some return from the company’s profits. As you know, buying a company’s stock means that you are a part owner of the company, no matter how small a piece. Therefore, as a part owner, you get to receive part of the profits. The dividends are distributed per share depending on the company’s revenue and cash flow. For example, a company listed on BuyStocksEasy like Apple generated $69.9 billion in revenue for the fourth quarter of 2019 and they issued $23 billion to shareholders with a dividend of $0.73 per share.
In the US, companies usually pay dividends on a quarterly basis, which means shareholders could earn passive income four times a year. Companies elsewhere could issue dividends either once or twice a year. Stock paying dividends are better than other stocks because an investor can earn passive income. Over the years, the initial investment can grow exponentially and produce even more income if the dividends are reinvested.
Take the example of Coca-Cola, which has an estimated dividend growth rate of about 7% and the share price increases at about 5%. If you were to invest just $1,000 today through the best trading brokers at a share price of $46.48 and keep increasing the investment by $100 every month, the investment would be worth over $17,000 after 10 years and yielding over $600 in dividends quarterly. After 30 years and investing $37,000 over that time, the value of the investment is now worth almost $110,000 and providing over $1,400 in quarterly dividends.
This shows that an investor can use the dividends they earn from stocks to increase their investment and gain a decent income. Seeing this example, it’s not difficult to understand why someone like Warren Buffett is a billionaire. The good news is that even you can invest in one of the dividend stocks on the BuyStocksEasy website. When dividends are given in the form of money, these are referred to as cash dividends. Alternatively, a company could also issue stock dividends, whereby investors are issued with more stocks instead of cash. To find out the best companies to invest in and earn passive income, use our calculators at BuyStocksEasy to see just how much you could be making down the line.
Are all public company stocks dividend paying?
However, just because a company has shareholders doesn’t mean they have to give out dividends. The same Apple we used as an example previously, did not give any dividends to their shareholders between 1995 and 2012. Although the company was still making money, indeed they had accumulated more than $25 billion in cash holdings, they did not give any dividends whatsoever. On the other hand, Coca-Cola has always paid out a dividend since 1920 and the dividend has been increasing every year over the past 55 years. This means that a company can decide whether or not to issue dividends. There are many other dividend stocks you can find being offered by the best trading brokers, and all you have to do is pick one; or a few. How do companies choose whether to pay dividends or not?
A company’s board decides whether or not to give dividends depending on their plans for the business and the company’s earnings. Since the dividends come from the company’s earnings, the company’s board has to determine whether they want to use the money for something more important. For example, a company may decide not to pay dividends or reduce the amount of dividends so that they can use the money to acquire another company, expand the business or any other activity meant to improve the company in future.
Inasmuch as a company gets to choose if they will give dividends, it is usually in their best interest to do so. By issuing dividends, investors keep reinvesting into the company and attracts more investors. Big corporations only see minimal changes to their share price, so they issue dividends to keep their investors from looking for other options. In so doing, the company’s share price keeps rising due to the demand, a win-win for the investors and company alike. Some companies will even go to the extent of issuing dividends and suffer a loss rather than have their investors run off.
This is why companies listed by the best trading brokers that constantly issue dividends are also often financially stable. If you’re a long-term investor looking to avoid risk, dividend stocks are the way to go. As we have already seen, the returns are very attractive, and it also shows that the company is very stable within its industry. That is why newer tech companies like Netflix still don’t offer any dividends despite having huge returns.
What are the qualities of good dividend paying stocks?
It is easy to get caught up in the size of the dividend, after all, more is better than less. However, it is more important to consider the dividend yield when planning to invest in a company. The dividend yield indicates the actual return of your investment per share. The value is calculated by dividing the dividend amount by the share price. When Apple issued a $0.73 dividend, the share price was $155, making the dividend yield 0.47%. Meanwhile, Coca-Cola’s dividend yield would be 3.08% ($1.48 / $48). Even though the yield for Apple is less than that for Coca-Cola shares, it doesn’t mean that the latter is a better performer. In fact, the lower the dividend yield, the more lucrative a stock.
5 best performing dividend stocks
At BuyStocksEasy, there are many stocks to consider, but these 5 are the best options for dividend investors:
Royal Dutch Shell
Oil and gas companies have always been attractive investments, as the past century has shown. RDS in particular has been outstanding in the industry, with a 5.9% dividend yield currently, lower than most other companies in the industry. Another thing going for Shell is that there is an oil downturn, meaning that the stock is cheap to buy presently. Finally, the company recorded a 48% increase in earnings in Q4 2018 compared to the year before. Now we have a company ran excellently, is undervalued and with high upside potential, a must-have for any dividend investor.
The electronic devices market was pretty down last year, sending United Micro’s stock 25% downwards. Nevertheless, the industry is far from dead, and technological advancements in the form of 5G are coming soon. Add to that, trade wars are cooling down, all indicating that the market is about to enjoy an upswing. Now is surely the time to buy this stock.
Noble Midstream partners
This is a master limited partnership (MLP) that has been growing through acquisitions. Previously, they would acquire capital through dilution, selling additional units, but they have now acquired funding from Global Infrastructure Partners. They estimate a 20% growth in annual distribution for the next 5 years or so, and this is good news to dividend investors.
When thinking about safe stocks to invest in, why not just go for the one we keep mentioning over and over. They have already proved to be consistent in issuing dividends, and you can expect the same in years to come. Perhaps the only problem might be that you may have to wait a while to realize huge returns for your investment. All the same, definitely something to keep your eye on.
This pharma company has issued dividends to its shareholders since 1885, and its current dividend yield is 2.5%. This is another company unlikely to stop giving dividends and is a safe bet just like Coca-Cola.
Where to buy dividend stocks online
There are many ways to buy stocks online, and the most reliable and trusted of those can be found in the best trading brokers. Here, you will find the above-mentioned stocks and more to start enjoying the dividends you’re hoping for.