Dividend Investing Tips from the Experts

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Dividend investing is a great strategy for those searching for a form of passive income. For those of you unfamiliar with the stock market, this means investing in stocks that pay regular dividends, be they yearly, biannual, quarterly or monthly. Many people think that the stock market is only for buying and selling stocks (buy low, sell high). However, these are the riskiest types of investments, and for those who are looking for a safer, long term passive income strategy, dividend investing is the best choice. Nonetheless, this strategy also has some risks, and in order to reach your financial tips, you need to keep some key factors in mind. Follow our tips if you want to know how you can make your money work for you in a safe and secure way.

1. Be careful with high yield stocks

First of all, you should know that the yield is not the same as the ROI, although these concepts are related. They both refer to the profit that an investment brings. However, ROI is a retrospective term, and it refers to the overall capital gain that an investment has produced, and it includes both dividends and other capital gains such as increased share prices. Yield on the other hand is a prospective term and it refers to an investment potential to generate a certain income, within a given time frame. While it may be tempting to chase high yield stocks, these types of stocks also have the highest risks. Moreover, when you chase only the high yields, you might be tempted to ignore other important factors like industry trends, market changes and so on.

2. Always stay connected to the market

Researching is the foundation of any good investment strategy, and you should always have some valuable sources that can teach how the market is changing and evolving, while also providing investment tips. We advise you to subscribe to trustworthy websites such as Dividend Appreciation. There you will find a lot of investment tips from the experts as well as a list of the best performing stocks. Dividend Appreciation’s Best Dividend Stocks are chosen based on thorough market and industry analysis. These stocks are low risk, so they make for great long term investments.

3. Stick with what you know

There are countless industries in which you can invest, but it is always best to invest in the industries that you are familiar with. This is Warren Buffet’s most important advice for young investors. The truth is that high yields can often lead you toward shady industries that you don’t understand and which can be very risky. So, you should do your research properly and invest in what you know instead of chasing ghosts.

4. Analyze the payout history and ratios

First of all, you should analyze a company’s payout ratio. Some companies don’t pay dividends for decades, and while they can be great long term investments, they are not for people who are searching for an additional form of income. So, you should look for companies that have a history of steady dividend payments. However, you should also consider the payout ratio. If a company invests too much in dividends, this means that it is investing very little in the business itself, which can be very bad in the long term. In the best case scenario for this situation, you can expect the company’s yield to decrease in the future to restore the balance, or if it continues on this road, the company might not have a future at all.

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