If investors are new to trading stocks, it can be difficult to discern the stocks that pay high dividends versus the ones that don’t. In this article, investors can learn what high dividend stocks are, how they work, and what they need to know to make smart stock purchasing decisions.

What Are Stocks That Pay Dividends

Stocks that pay dividends provide investors with the opportunity to earn extra cash while earning continuous rewards thanks to regular dividend payouts. Dividend-paying securities are generally considered to be an effective and reliable way for investors to build their portfolio while counting on cash distributions rather than having to monitor percentages of their portfolio.

Before delving into what high dividend stocks are and where to find them, it’s important for investors to first understand the general concept of dividends.

  • What Is a Dividend?
    A dividend is a payment received from a corporation or company to shareholders. In other words, it’s their share of the profits. Dividends are sometimes issued as stock, referred to as stock dividends, or as cash, referred to as cash dividends. Companies typically issue quarterly dividend stocks, though exceptions are sometimes made in the case of an event or merger.
  • Understanding Dividend Yield in the Stock Market
    In order to find the value of dividend payments, investors first have to determine the yield — a way of measuring the dividend relative to the share price. For example, if an investor purchases $100 in stocks and they payout an annual amount of $5.00, then the investor earns a yield of five percent. Dividends are usually part of an individual’s long-term investment plan, with individuals reinvesting their dividends into the same company in order to enjoy larger yields as a result.
  • What Companies Pay Dividends on Stocks?
    So, why do corporations offer dividends? Larger corporations are typically financially stable, and they don’t see much fluctuation in stock prices. This can make purchasing shares for these larger companies unappealing to stock traders. By offering dividends, these large-cap organizations are able to entice shareholders. In turn, the yields from dividends act as a bonus, making shareholders more likely to retain their shares long-term.

What Is a High Dividend Stock?

High dividend stocks are securities that yield a higher rate of return than the average dividend payer. Since the rate of stocks is relative to the market, there isn’t an official cutoff when determining low versus high dividend stocks. In other words, a high dividend stock on today’s market may have been considered to yield low dividends a couple of decades ago. It is noteworthy, however, that high dividend stocks tend to be riskier investments.

A good rule of thumb? The higher the yield, the higher the risk.

What Are the Benefits of Trading High Dividend Stocks?

There are many reasons why investors choose to trade high dividend stocks. Some tempting reasons include receiving regular payouts, low interest rates, the potential to outperform the market, tax efficiency, and compounding. Compounding is the term used when an investor will reinvest in the same company, which in turn yields more dividends.

When Is the Best Time to Purchase High Dividend Stocks?

When trying to determine the best time to buy high dividend stocks, it’s important to consider key factors including interest rates, stock market trends, and the time of year. Since purchasing high dividend stocks can be risky, it’s important investors do plenty of research on stock market trends and interest rates before they buy. They’ll want to plan out their future investments and be smart about it.

The January effect is a seasonal stock market phenomenon characterized by an increase in stock prices at the beginning of the year. While this may feel counterintuitive as most people are spending less come January, it’s important to remember that retail spending doesn’t follow the same cycle as stocks. At the end of every year, while most people are spending their hard-earned cash at outlet stores, investors are selling to maximize the losses on their tax returns.

In recent years, however, retirement fund investments have altered the stock market cycle, making the seasonal stock market phenomenon less predictable.

How to Invest in High Dividend Stocks

For investors looking to purchase the best high dividend stocks in 2019, there are several key factors to consider, including dividend stability and a company’s dividend payout ratio.

It may come as a surprise that earning a high dividend yield isn’t always a good thing. Unusually high dividend yields may indicate an unsustainable payout or indicate that investors are selling the stock and decreasing the stock’s value while increasing the dividend yield at the same time. As a general rule, any dividends over four percent should be evaluated carefully, and yields over 10 percent are considered to be quite risky.

A company with financial security and stable earning is more likely to have dividend stability. This means the company will be more likely to pay steady — and sometimes higher — dividends to shareholders. Investors can assess whether a company’s dividends are sustainable by using the dividend payout ratio. This ratio can be calculated by dividing the dividend per share by earnings per share. A dividend payout ratio greater than 100 percent may warn investors against a potential cut.

Since not all high dividend stocks are smart investments, it’s important that investors always do their research before purchasing. Investors wanting to evaluate high dividend stock can begin by comparing the company’s dividend yields to its main competitors. If its dividend yield is significantly higher, investors should proceed with caution. At a minimum, it would be worth collecting additional share research to discover the overall stability of the dividend.

List of Best Dividend Paying Stocks

Here is a list of five of the best dividend stocks in 2019, organized by dividend yield, or the amount paid annually.

1. Maxim Integrated Products

Maxim Integrated Products develops integrated circuits for a variety of industries including computers and autos. It has paid out dividends since 2002 and has increased dividends every year since 2010.

  • Dividend yield: $1.92 annual dividend per share, yielding 3.3%
  • Five-year return: 100%
  • Dividend growth rate: 13%
  • Dividend stability factor: 4
  • Dividend payout ratio: 79%
  • Earnings stability factor: 9

2. Best Dividend Stocks: JPMorgan Chase

JPMorgan Chase has increased dividends for the past eight years and has paid out dividends for 20 consecutive years.

  • Dividend yield: $3.60 annual dividend, yielding 3%
  • Five-year return: 105%
  • Dividend growth rate: 15%
  • Dividend stability factor: 7
  • Dividend payout ratio: 35.3%
  • Earnings stability factor: 8

3. Best Dividend Stocks: Fidelity National Finance

Fidelity National Finance provides insurance for real estate and mortgage industries and has increased dividends for seven consecutive years.

  • Dividend yield: $1.24 annual dividend, yielding 2.7%
  • Five-year return: 110%
  • Dividend growth rate: 22%
  • Dividend stability factor: 17
  • Dividend payout ratio: 41.5%
  • Earnings stability factor: 6

4. Best Dividend Stocks: Texas Instruments

Texas Instruments, a chipmaker, has paid out dividends every year since 1962 and has increased dividends for 5 consecutive years.

  • Dividend yield: $3.08 annual dividend, yielding 2.4%
  • Five-year return: 171%
  • Dividend growth rate: 22%
  • Dividend stability factor: 4
  • Dividend payout ratio: 57.9%
  • Earnings stability factor: 4

5. Best Dividend Stocks: The Home Depot

The Home Depot, a home improvement retailer, has paid out dividends for over three decades.

  • Dividend yield: $5.44 annual dividend, yielding 2.3%
  • Five-year return: 150%
  • Dividend growth rate: 32%
  • Dividend stability factor: 7
  • Dividend payout ratio: 53.7%
  • Earnings stability factor: 3

Alternative to High Dividend Stocks: ETFs

As an alternative to purchasing high dividend stocks, many investors choose to instead invest in dividend exchange-traded funds or ETFs. When an investor purchases an ETF, they receive a bundled package of securities, allowing for more variety and diversification of stocks in a single transaction. In the case of a dividend ETF, if one stock under performs, the loss of income will be balanced out by the other dividend stocks in the bundle.

What Are the Benefits of Purchasing High Dividend Stocks?

Dividend stocks have long been used by successful stock market traders and can provide continuous rewards and reliable payouts to help fund new investments. High dividend stocks provide investors with the opportunity to earn extra cash, but at a more accelerated rate than lower-paying stocks. Like with any other high-reward trading method, trading high dividend stocks comes with a heightened level of risk. To make smart investment decisions, it’s important for investors to conduct market research and perform a technical analysis before purchasing stocks.

For help getting started, check out the free Raging Bull Bootcamp, which provides new investors with insider tips from seven top traders so you can beat the market and earn exciting returns. You can also check out our testimonials to learn how we’re helping our clients earn profits from stock trading become. With RagingBull’s insider information on the stock market, you can start building your investment portfolio today.

Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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