Why Buy Dividend Stocks?

Almost all of us must have read or heard about dividend stocks (dividend shares) in various newspapers or news channels. Dividend shares are the profits or payments made by a company to its shareholders from time to time (quarterly, yearly or half-yearly). It is usually a part of profit. The amount to be paid as dividend is decided by the board of directors. Dividends can be paid in cash or stock.

Why buy dividend shares?

You should decide to buy dividend shares after taking into consideration the following factors –

  • Passive Income – Revenue from the stock market is highly volatile. Income from the stock market generally depends on the value of the stock. The market fluctuates due to various factors, causing a change in the price of the stock. However, dividend shares pay their shareholders an amount even when the market is stable or fluctuating. Hence it is a source of passive income.
  • Stability – Dividends are paid only when the earnings of a company are stable or are making steady profit. This means that when you invest in a company that has paid a good dividend many times before, it ensures your income and brings stability.
  • Reinvestment – Companies often offer shareholders the opportunity to reinvest their dividends. This means that instead of taking the amount of dividend you can choose to reinvest it in the shares of the company. This can benefit you in the future.
  • Benefits on increasing prices – The buyer’s initial capital increases when there is a difference between the purchase price of the shares and the current market price. When stock prices rise in the stock market, stockholders benefit.

How to invest in dividend shares?

Before investing in a company, you should do a deep study of the company. The history of dividend payout will help you understand the stability of the company. You can know the financial position of the company through the company’s balance sheet. In addition, you should focus on those dividend shares that pay higher dividends. You can invest in dividend shares through the following steps –

  • Open a demat account and trading account with any broker of your choice. The broker must be registered on the stock exchanges. Nowadays many online brokers are available such as Zerodha, Upstox etc. A Demat account is like a bank account. All the shares you have purchased are transferred to this account. A trading account is an account through which shares are bought and sold.
  • Research about stocks and make a list of stocks in which you want to invest.
  • Learn about the past and present of the company and get information about the future. For example, if a company is planning to enter a new market or sector, it can prosper and therefore increase its dividend value.
  • Start buying and selling stocks through your broker.
  • The company does not necessarily have to pay dividends. Companies may choose to pay a lower dividend or not pay it due to a financial or economic crisis. So keep a close watch on the current events of the company.

How to identify the best dividend shares?

Knowing the basics of dividend shares will make you feel like an attractive and simple means of making money, but like any other investment option, it also requires hard work and time. You have to do systematic research about the company. You have to regularly observe stock market prices, etc. Keep in mind the following while selecting a dividend share –

  • Steady profit. Only companies that make regular and steady profits can pay steady dividends.
  • Focus on companies that have paid higher dividends in the past than before. This means that the dividend value of these companies may increase in the future, as an increase in dividends attracts investors.
  • Monitor the industry. Companies also monitor the industry in which they operate. If you invest in an industry that is going down, then every company in that industry will face a problem. This affects the stability and profitability of the company. For example, investing in the digital industry would be a great option in this digital age.
  • loan. Do not invest in companies that have huge debt. If a firm has more debt, it should not be risked to invest in it.
  • Low and steady income should be your priority. Do not focus on high returns, as there may be risk.
  • Compare different companies of the same industry. This will make it easier for you to choose a better company.
  • Get information about the company’s balance sheet. A company’s balance sheet lists the assets, liabilities and equity shareholders of that company. This will tell you how much assets and liabilities the company has.

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