4 Important Tips for Dividend Investing

The process of dividend investing can prove to be very beneficial for you and your portfolio. Properly investing can increase your portfolio and provide you with a residual source of income. Here are a few important tips to keep in mind when investing in dividends. 

1. Do Not Forget Taxes

In most cases, the dividends that you receive from your stock investments will be taxable. Even if you reinvest the dividends, you will be subject to taxes on the money from the dividends. You will have to count it as income in the year in which you received it. It will also be taxed at your normal marginal tax rate. Therefore, the tax burden on these dividends could potentially be significant, depending on how much you make. Many people use the dividends that they receive to reinvest in their portfolio. While this is a fine strategy, it will result in your having to come up with money from somewhere else to pay your taxes. Consult a tax specialist about how to properly handle your dividend tax issues. 

2. Reinvest the Dividends

One good strategy is to reinvest dividends as you get them. When you receive a check for a dividend, immediately take it and buy more stock with it. This will result in a quickly growing portfolio. Dividends are calculated based on how many shares of stock you have. Therefore, the more shares you have, the bigger your dividend payment is going to be. The bigger your dividend payment is, the more shares of stock you can buy. Therefore, the more you use this method, the bigger your portfolio will be. It can really compound the return on your investment much more quickly than other investment methods. 

3. Consider the Source

When choosing what companies to invest in, you will need to consider where the money is coming from for your dividends. You will want to invest in companies with strong track records in their industries. You want a company that has traditionally paid out a dividend. It also helps to find a company that is well-diversified. For example, many of the companies that pay out monthly dividends are holding companies with several different streams of revenue. You want to know that there will always be plenty of money to pay dividends. 

4. Watch the Ex-Dividend Date

When you are buying a stock solely for the dividend payment, you need to make sure that you are aware of the ex-dividend date of the stock. The ex-dividend date is the date you have to be a shareholder in order to get paid a dividend. If you sell your stock before that date or buy it after that date, you receive no dividend for that particular period. 

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