Top Dividend Paying Stocks – Four FAQs

What are the top dividend paying stocks? This is a huge consideration, because this can be a huge part of your income. Here are four frequently asked questions about the topic:

1) What are dividends?

Dividends are funds that the corporation pays shareholders out of its profits.  It is completely separate from the market price of its shares. When the company makes money, they can do one of two things-either reinvest the money, or use it to pay the shareholders.

There are pros and cons to each. Obviously reinvesting the money can increase profits and cause the stock price to rise. However, many investors prefer getting consistent money in the form of dividends.

2) How often are dividends paid out?

Companies have different dividend payout schedules, but most distribute dividends either quarterly, semi-annually, or (occasionally) annually. There’s even one company I’m aware of, Realty Income (O), that pays dividends monthly.

3) How do you identify the best dividend paying stocks?

If you are set on getting a dividend every three months, there are a few things you need to look for. One is to simply find firms that have paid out dividends consistently in the past. If the dividends have been steadily rising, this is even better. This shows they will most likely continue paying them out down the road.

Also, make sure you analyze the company as a whole. Remember, when buying these shares you are doing so for the long term. Therefore, you are basically buying part of the company. For this reason, it is important that you look at their financial track record, and find companies that have been profitable for a minimum of 10 straight years. This is a sure sign that trend will continue.

In addition to this, be sure that their future outlook is good. To tell this, analyze their debt levels. Obviously the lower the debt is, the better. If the company has a large amount of long term debt on the horizon, that could spell trouble.

Also, it is best to only invest in companies you know. This is because this way you can compare their products with their competition, and accurately forecast their future profitability. This is one of the most important tips for finding the highest dividend paying stocks.

4) Is investing in high dividend paying stocks a wise choice?

It really depends on what options are out there. High dividend yield stocks can make excellent investments in a down market, but will likely lag in a bull market.  If there are other non-dividend paying companies that have increased their stock price more effectively, it might be wise to go with them. It just depends on what is available at the time.

The bottom line is to know that finding the top dividend paying stocks will take time and effort. You will have to research any company before buying. Doing proper research is often what separates the successful investors from those who fail.