DIVIDEND STOCKS FOR DUMMIES

Posted by stocker on September 21, 2010 in Stock market basics | Short Link

In times when interest rates are low (like now) dividend stocks become more popular among stock investors. They are also looked at more closely when the market as a whole goes down because some people view them as being a little bit better investments than stocks that don’t pay a dividend.

Not all stocks pay dividends and in fact, most don’t. Those that do usually have ones that are very small (under 1%) and that doesn’t amount to much. But some stocks pay dividends that are 2% or higher and it all depends on the company and how much they want to give back to shareholders. Some companies like to keep all the cash themselves for research and development, expansion, legal costs, and any other emergencies that might develop.

Microsoft was a good example of a company that had absolutely tons of cash but refused to pay out any of it to investors for years. The stockholders complained and complained and finally Microsoft relinquished and decided to pay a small amount back quarterly. Today the dividend amount is around 2%.

Some investors only buy stocks that pay dividends as they feel they have better value. When given the chance, why not pick stocks that pay you back a little every quarter rather than ones that don’t? Other investors would rather focus strictly on picking stocks they feel have the best chance to go up and they ignore whether a stock pays a dividend or not.

No dividend is safe and often times it will be the first thing to be cut when a companies profits are down. So, even if you buy a stock with a healthy dividend today, it is not something you should count on. During this very difficult economic stretch over the last 3 to 4 years that saw the market go way down, many companies stopped paying their dividend.

For a list of the highest paying dividend stocks you can go here. Remember though, while those stocks may pay that dividend today, there is absolutely no guarantee that they will pay it tomorrow. You should not be buying stocks just because they pay a nice dividend. If they go down, it will most likely wipe out any money you made with the dividend and probably a whole lot more too! If you want more information about stocks with dividends, you might pick up one of the books called Stock Market For Dummies that you can find in almost any bookstore.

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