As a CEO, it’s important to consider dividend stocks as an investment option. To do so, you need to understand what this investment entails, the benefits it provides, and how to approach the investment process. Read on to learn more about dividend stocks and why you should consider investing in them.
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What Are Dividend Stocks?
Dividend stocks are profit distributions made by a corporation to its investors in the form of company shares or payouts. Dividend stocks are a solid way to earn passive income and diversify your portfolio. Though quarterly and annual payouts are the most common, dividend stocks can also be paid out monthly or semi-annually.
Reasons To Invest in Dividend Stocks
As a small business owner, it’s important to understand the benefits dividend stocks can provide to your company or organization. Here are the reasons why they’re a beneficial investment option:
- Steady income: Investing in stocks provides you with a reliable source of income, regardless of the payout frequency. Essentially, they allow you to build passive income.
- Tax advantages: Many dividend stocks have a special tax rate called the qualified dividend tax rate. This means you pay a special rate of 0, 15, or 20%.
- Protection against market downfalls: Unlike other investments, stocks keep paying you despite market volatility. Even if its value drops, you’re still guaranteed a payout without your investments taking a hit.
Here are some reasons to invest in monthly dividend stocks, in particular:
- More reliable income: Since you likely pay most of your bills on a monthly basis, you can put your monthly dividend payout toward expenses like utilities and rent.
- Potential for faster growth: Whereas an annual payout can help you profit from your initial investment, a monthly payout allows you to gain returns from both your initial investments and dividend payments if you reinvest in the issuing company.
- Flexible selling options: Having monthly dividend stocks allow you to sell without the pressure of holding onto it until you receive your distribution.
Tips for Investing in Dividend Stocks
If the benefits of dividend stocks seem worthwhile, start looking for companies to invest in. Here are some tips for finding the best dividend stocks:
- Consider the company’s industry: As you research dividend stocks, be mindful of the industry the company is in. Determine if it’s a high-risk industry and whether it may face volatility.
- Determine if the company has a competitive advantage: Do some research on various companies and whether or not they’re offering unique products and services compared to competitors. Invest in a stock whose company has the potential to make a sizable profit compared to others in its industry.
- Consider the high payout ratio: Find a company that offers a sustainable dividend payout stream. Calculate this ratio by dividing the dividends per share by the earnings per share. A lower payout ratio tends to be preferable.
Now that you understand dividend stocks and the benefits they provide, you’re better able to determine if this type of investment is worthwhile. Make sure to consider your current finances before proceeding.