Investing is a great way to supplement your income and it’s something plenty of people are doing every day. In fact, more than 55 percent of Americans own some form of stock.
If you’re like most new investors, you’re likely not sure where to start or how to choose investments that will pay off.
You can’t guarantee a set return on any investment, but you can hedge your bets by investing in the right things. Here are a few simple tips to help you make the right decisions when buying dividend stocks.
1. Research the Company
A company that has volatile dividend patterns in the past will likely have those patterns in the future. Before you buy any shares, see what the stocks’ performance was like over the last year.
If you see consistent increases in dividend payments, the stock is a good choice. If you see that dividend payouts got cut repeatedly, choose a different stock.
You’re in this to make money. A company that cuts dividend payments repeatedly is decreasing the amount of money you could receive.
2. Pay Attention to Growth
Investments help companies grow and the more successful they get, the better your dividend payouts will become. Learn more about the company’s growth patterns and their behavior throughout the year.
If a company is on an upward swing and has been for a while, they’re worth considering. If the company has a high dividend stock but hasn’t grown much in the last few years, proceed with caution. You may get a high payout now, but that payout could diminish over time.
3. Avoid Stocks That Sound Too Good
Some stocks have almost absurdly high dividends and it makes them incredibly attractive to new investors. After all, you’ll get a huge return on your investment, at least in theory.
Incredibly high payouts take money away from the company’s growth fund. This can make it hard for them to maintain their upward mobility and could spell trouble in the future.
Remember, if a company can’t grow, your investments won’t grow either.
4. Watch Out for Debt When Buying Dividend Stocks
Companies have debt. It’s normal, but you shouldn’t buy dividend stocks in a company that has too much debt.
Look at their debt-to-equity ratio. If it’s high, it means there’s a risk that the company will cut its dividend payments and use that money to repay their debts. You have no way to know how long that cut will last or whether the company will rebound after paying down its debt.
Play It Safe and You’ll See Returns
The key to buying dividend stocks that perform well and pay out large amounts is to play it safe at first. Take your time and only invest in companies that you believe will grow in the future.
As your investments and your income grow, you can start investing in riskier stocks without hurting your bottom line.
Looking for more helpful tips on navigating the stock market and understanding investments? Check out our latest posts.