Smart Investing In Dividend Stocks

Be smart- not greedy about dividends.

Be smart- not greedy about dividends. Image: Simon Howden /

Investing in stocks, funds, and public companies for maximized dividend returns takes a certain amount of savvy and strategic positioning on the investor’s part.

It is characterized by some amount of risk and variables, but also wise decision-making, planning, and the ability to look at market trends and anticipate where the market is heading, whether short-term or long-term.

Investors focusing more on dividends

In the fast-paced world of investment portfolios, many investors have chosen to focus much of their attention on dividend-paying companies, or those that split their profits with shareholders and promise a steady and growing rate of payouts to their investors.

Dividend-paying stocks have become even more of a hot item as the economy recovers from the recession of the last four years, where many have seen their paper earnings and funds vanish into the air as much of the market felt the crisis. Indeed, high-yield cash returns seem like more reliable and tangible profits.

High-Yield Dividend Considerations

A great way to diversify your portfolio and invest your income in a wide range of stocks in the United States and internationally is through exchange traded funds or ETFs, many of which are dividend-focused.

But it is also important to note that high yields and immediate cash returns are not the only factors to be considered when investing in stocks; long-term profitability and the growth of your investment should also be considered.

Read: Some Caution Regarding High-Yield Dividends

“A very high yield often signifies that a company is distressed and may not actually be able to pay its dividend going forward,” according to Richard Turnill and Stuart Reeve, managing directors and portfolio managers at BlackRock Inc. “While an above-average yield is an important component of total return, dividend growth — a company’s ability to consistently raise its dividends — is even more powerful over the long term, through the compounding of growth on growth.”

In a recent article on The Wall Street Journal’s MarketWatch (Dividend Growth Large Cap Stocks), analysts and fund managers cautioned against simply focusing on dividends without much thought to these companies’ internal investments, research and development, or even growth potential.

“We don’t ignore dividend payers or take them off the watch list, but our preference is for companies that have ample opportunity to reinvest capital,” said John Neff, analyst at Akre Capital Management.

Look for dividend growth

In any case, you should still look for companies that raise or increase their dividends on a regular basis, as this is a sign that the company is doing well, is profitable, and optimistic about the future.

Also, be aware of payment schedules during the year, so you know when you can expect your dividends and can plan on where or how to reinvest your earnings. This guide from, for instance, (12 stocks to get you dividends every month) gives you a list of when companies pay out their dividends to shareholders.

Some other things to help you select dividend stocks:

  • Size and Diversity – Larger companies are more likely to have more diversified holdings and less exposed to sudden market upheavals (i.e. General Electric).
  • Low debt – Even profitable, mature companies have debt, so only focusing on no-debt companies would leave you with not a lot of good options. To be on the safe side, invest in companies with low debt ratio.
  • Current investors and their outlook – If big-name investors and funds are lining up to invest big bucks in a company, that is a good sign that it is viewed positively by the big players and can help with your dividend goals.


  1. says

    You can never go wrong with dividends – especially when you are reinvesting the proceeds. Love me some dollar cost averaging :) Would you believe that this is one of the topics that my finance students struggle with, everyone is so fixated on picking the next capital appreciation rocket ship. Great breakdown and approach, I’m a fan!

    • says

      Thanks Nunzio!

      There’s two things that I love about dividends:

      – Automated dollar cost averaging as you point out.
      – Compounding dividends.

      Dividend upon dividend upon dividends will eventually outpace any type of capital contribution you could wish to make into a stock. You just have to have a long enough sight. Thanks for stopping in. Someday, your students will understand and appreciate what you are teaching 😀

  2. says

    The number one thing I look for when I evaluate a company is if it pays a dividend. As an investor I want to know that the company has my best interest at heart. Contrary to popular belief the number one goal of a company is to make money, the second goal is to make its shareholders money. Plain and simple! There are two ways companies consistently pay their shareholders on a recurring basis regardless of the current share price. This is through dividends and share buybacks. If a company isn’t engaging in one of the two I throw it in the trash.

    • says


      I loved this bit “Contrary to popular belief the number one goal of a company is to make money, the second goal is to make its shareholders money.” With the way some people invest, it’s almost as though they forgot that. So many people were licking their chops at the Facebook IPO just to own the stock of a company that they spend so much time with. Here we are almost a year later and it’s still down 37% from its high.

  3. says

    I’m really focussed on dividend growth more than anything else (even than high yield). if I can get consistent growth, without great increases in payout ratio thats a sign to me that the company is growing, its generating strong cash and over time Ill be rewarded with increasing dividend income and strong stock price appreciation.

    I actually prefer mid caps that are growing their dividends strongly because its more likely they’ll be able to grow rapidly for lengthy periods