This article was reviewed by Robin Hartill, CFP.
If this punch in of investment sounds appealing, you may want to considerinvesting in stocksthat pay dividends.
What Is a Dividend?
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A dividend is a portion of a companys earnings thats distributed back to shareholders.
A companys board of directors votes on whether to approve a dividend.
Not all stocks pay a dividend.
Theyre more common in large companies with a steady history of earning profits.
Dividends are usually paid out quarterly and can be paid in cash, stock or property.
Cash dividends are most common, so well focus on those in this post.
Looking for Other Ways to Make Money Beyond Dividends?
If youre looking for other ways to make money beyond dividends, weve got some ideas for you.
Heres a list with some of our favorite ways to make quick money.
Who Might Want to Invest in Dividend-Paying Stock?
But retirees arent the only investors interested in dividend-paying stock.
Younger investors may want to reinvest the cash dividend back into more shares of the stock.
A company that offers a dividend reinvestment plan, or DRIP, allows investors to do so automatically.
Over time, thecompounding effectbenefits the saver.
How to Choose Stocks That Pay Dividends
Theres no shortage of dividend-paying stocks to choose from.
More than 400 of the 500 companies on theS&P 500pay a dividend.
With all those options available, how should an investor choose?
One thing to look at is the dividend yield.
Thats the ratio of the annual dollar value of dividends paid out per share to the share price.
For example, say a stock is priced at $25 and pays total annual dividends of $1.
The stocks dividend yield is 4%.
Paid a dividend in each of the last 25 years2.
It includes huge names such as McDonalds, Wal-Mart, and Coca-Cola.
But buying individual shares is not the only route to take.
Investing in a dividendmutual fundorETFcan help youdiversify your portfolioby spreading your investment across a number of different stocks.
They can also help you keep brokerage fees to a minimum.
Should You Buy Dividend-Paying Stock?
Investing in stocks is inherently risky, and dividend-paying stocks are no exception.
But dividend-paying stocks tend to be somewhat conservative since the issuing company is typically well-established.
But remember: Some risk is necessary if you want your money to grow.
For most investors, dividend-paying stocks are a good way to achieve long-term, steady growth.
Julie Mayfield is a freelance writer and blogger specializing in personal finance and lifestyle topics.
She is the creator of two blogs: The Family CEO and Creating This Life.
Senior editor Robin Hartill, CFP, contributed to this report.
