What Is Dividend Investing?
Dividend investing means building a portfolio of companies that pay regular dividends, so your investments send you a growing stream of cash.
Why people like it
Dividends give you income without selling shares. Companies that raise their dividends year after year are often steady, profitable businesses. Reinvested dividends grow through compounding.
What to look for
- A reasonable dividend yield, not a suspiciously high one.
- A safe payout ratio.
- Steady free cash flow that covers the dividend.
- A long record of raising the dividend.
The risks
Chasing the highest yield can lead to companies about to cut their dividend. Dividend stocks can also lag fast-growing companies that pay nothing and reinvest instead. In the US, dividends in taxable accounts are taxed each year.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
DividendCash a company pays its owners.
Dividend yieldYearly dividend as a percent of the share price.
Payout ratioHow much of its profit a company pays as dividends.
DRIPUsing dividends to buy more shares automatically.
Blue chip stocksShares of big, steady, well-known companies.
REITA company that owns property and pays out most of its income.