Special dividends are one-time payments that should not be counted on to reoccur. ETFs are subject to market fluctuation and the risks of their underlying investments. Below are the top 10 results of a screen using the Fidelity stock screenerLog In Required that sorts stocks by dividend yield as of July 21, 2025. InvestingCube’s editorial policy is centered on delivering thoroughly researched, accurate, and unbiased content. He has covered investing and financial news since earning his economics degree from the University of Maryland in 2016. Sam has previously written for Investopedia, Benzinga, Seeking Alpha, Wealth Daily and Investment U, and has worked as an editor for Investment U, Wealth Daily and Haven Investment Letter.
You may already have a stock in mind, such as one of the dividend aristocrats or one of the high-dividend stocks listed above. But if you don’t, you can look for stocks that pay dividends on many financial news sites, as well as on your online broker’s website. A high dividend yield can indicate many things, and not all of them are good. A falling stock price can actually increase dividend yields, and some companies go into debt by overspending to pay high dividends. The over-spenders may eventually be forced to cut their dividends if they become unsustainable. The best high-dividend stock is currently Two Harbors Investment Corp (TWO), which has a forward dividend yield of 16.39%.
- Sam has previously written for Investopedia, Benzinga, Seeking Alpha, Wealth Daily and Investment U, and has worked as an editor for Investment U, Wealth Daily and Haven Investment Letter.
- In fact, as the next section explains, it doesn’t even tell you if that stock will actually pay the highest dividend yield.
- As an investor in dividend stocks, you could receive dividends from the company based on the number of shares you own.
- Another tax-exempt exception is if you earn lower than the three lowest federal income tax brackets (in the US).
- As a result, dividends may end up providing a significant portion of investor returns this year, he says.
Dividend-paying companies tend to be strong and stable
Another measure of good dividend stocks is the dividend payout ratio, which removes volatile stock prices from the equation by comparing a company’s earnings to its dividend payment per share. If a company earns $2 per share in a given quarter and pays a dividend of $1 per share, its payout ratio is said to be 50%. Dividend stocks can be a useful way to build your investment portfolio as you work on building long term wealth. Plus, you may experience an income boost through smart dividend investing.
Research stocks, ETFs, or mutual funds
It’s calculated by dividing the annual dividend per share by the stock’s price, which provides a percentage indicating your annual return on investment from dividends. Stock screeners are essential in this effort—once you’ve screened for stocks with a history of dependable dividend payments, review their history to determine if the payments have steadily increased. Reliable hikes to dividend payments indicates a company’s commitment to returning profits to shareholders. The potential benefits of ETFs can include competitive costs, ease of trading, and more, which helps to explain why they’ve been rising in popularity with investors.
How to start investing in dividend stocks
This problem is well-explained in one of Ryan Scribner’s YouTube videos, where he goes over a few examples of companies facing this problem. It turns out that often a very high dividend yield is a valuable signal a company might be about to cut or scrape its dividend entirely. Past performance and dividend rates are historical and do not guarantee future results. However, if you need the dividend as a source of income, you can have those dividends flow to cash. We empower women to pursue and achieve their dreams of financial wellness in order to live life on their own terms. Consider checking out our guide to investment terms to help you smoothly navigate the process of researching companies.
There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Starting young can be advantageous as companies usually increase their dividend yield over time. This approach will typically include companies that have a history of increasing dividend payments over time. While the yield will likely be lower than funds that focus solely on high payouts, the dividend growers may see more stock price appreciation over the long term based on higher earnings growth rates.
Make your money work: How dividend stocks can boost your returns
You should include that amount with your taxable income when you file your tax return. One of those mistakes is looking solely for a high dividend yield and not considering why the dividend yield is so high. Although a high dividend yield looks attractive at first glance, the reason why it’s so high might be more dubious. A high dividend yield often means a low share price, which in turn signals a lack of confidence among investors. Adding to the stability, dividend-paying companies tend to be large, established companies with steady cash flows.
- To look under the hood of a dividend stock, start by comparing the dividend yields among its peers.
- You’ll need to buy shares in companies, mutual funds or ETFs that pay dividends.
- A good example of a company that meets these requirements is Johnson and Johnson, but that doesn’t necessarily mean it’s a good buy.
- A high dividend yield often means a low share price, which in turn signals a lack of confidence among investors.
- InvestingCube’s editorial policy is centered on delivering thoroughly researched, accurate, and unbiased content.
In addition, some jurisdictions also tax foreign dividends at a higher rate, and dividends that are reinvested may still be taxed. Also, if a company is having trouble with money, it might cut or discontinue paying dividends. Therefore, you should only go for companies with reputable history of performance beyond dividend payouts. Dividend stocks can be a powerful way to build passive income and your investment portfolio. Although dividends are never a guarantee, this investment strategy can be worthwhile.
But each company will determine the payment date and method of payment on an individual level. Investing in dividend stocks can be a good strategy for patient investors looking to build a passive income stream. It’s a relatively low-risk strategy since dividend-paying companies are usually large, well-established companies with a good balance sheet. A benefit of this is its protection against bad markets, especially since dividend payments usually continue during market turmoil.
Dividend yields over 4% should be carefully scrutinized; those over 10% tread firmly into risky territory. Among other things, a too-high dividend yield can indicate the payout is unsustainable, or that investors are selling the stock, driving down its share price and increasing the dividend yield as a result. Expenses can also be lower with dividend stocks, as ETFs and index funds charge an annual fee, called an expense ratio, to investors.
Essential Things To Do When You Get Paid
To look under the hood of a dividend stock, start by comparing the dividend yields among its peers. If a company’s dividend yield is much higher than that of similar companies, it could be a red flag. At the very least, it’s worth additional research into the company and the safety of the dividend. In general, a good rule of thumb is to invest the bulk of your portfolio in index funds or ETFs, for the above reasons. But investing in individual dividend stocks with a small portion of your investment portfolio directly has benefits. If you want to invest in dividend stocks, you’ll need to have a brokerage account to do so.
He now writes The Red Tape Chronicles column at RedTape.Substack.com and hosts a podcast about the unintended consequences of technology.
Is investing in dividend stocks right for me?
One of the main benefits of dividend investing is the potential to benefit from stocks in two ways. On top of the potential price appreciation, investors receive a dividend from companies whose stock they own. These companies usually increase their dividend yearly, leading to more passive income for the investor.
Dividend investors usually invest only in companies with a dividend, and their goal is to create a substantial stream of passive income. With dividend investing, an investor can potentially profit off the dividend as well as share price appreciation. Investors with a longer time horizon can focus on buying stock in companies that are growing quickly but currently pay lower-than-average dividends. This won’t yield as much income in the short term, but as a firm grows and its business matures, the dividend yield should rise gradually. Getting in early means investors can buy more shares and eventually earn more dividends. The cheaper “cost-on-yield” makes this a better long-term investment strategy.
The stocks mentioned are not necessarily holdings invested in by Fidelity. References to specific company stocks should not be construed as recommendations or investment advice. In the current market, more dividend companies are also cutting, suspending and eliminating their dividends to cope with overburdened balance sheets, O’Keefe says. So be sure to do your research before purchasing stock in a company that traditionally pays dividends. As a result, dividends may end up providing a significant portion of investor returns this year, he says.