Home/Blogs/All You Need To Know About Dividend Stocks

All You Need To Know About Dividend Stocks

stock market
Published Date: 08 May 2024Updated Date: 27 Dec 20246 mins readBy MOFSL

Introduction

Stock market investment is one of the most popular ways of making money. As you dive into the world of stocks, you will discover several types. One such is dividend stocks. What are dividend stocks, how do they work, and how can you invest in them? Let's unravel. 

What are dividend stocks?

The stocks of companies that make regular payouts from their profits as a reward for your investment are known as dividend stocks. These rewards can be in the form of cash or reinvestment in additional stocks. The dividend payout you receive is decided based on the number of shares you own and the dividend yield

The dividend yield refers to the dividend per share, represented as a percentage of a company’s share price. The more shares you own and the higher the dividend yield, the higher you earn. Usually, large and established companies making consistent profits are the best dividend payers. Industry sectors with a consistent record of dividend payments include oil and gas, healthcare, utilities, banks, etc. 

Open Your free Demat Account in just 5 minutes!

How do dividend stocks work?

Companies may choose to pay dividends monthly, quarterly, or annually. The board of directors of a company decides the rate of dividends. So, dividend payouts can vary from company to company. 

Owning or purchasing a company’s stock before the ex-dividend date makes you eligible to receive the dividend payout. An ex-dividend date is when the dividend eligibility expires. It is when a company stock begins trading without the value of the profits factored into its share price. You need to wait for the next payout if the stock is purchased after the ex-dividend date. 

You can receive the dividend in cash, which is the most common method. You can either withdraw this money or use it to expand your portfolio. You can also receive additional shares of the stock you hold. A few companies offer Dividend Reinvestment Programs known as DRIPs. These allow you to earn dividends and reinvest them back into the company. 

How can you invest in dividend stocks?

Now that you know about dividend stocks and how they work, here’s how you can invest in them:

Step 1: Open a Demat and a trading account 

Investment in dividend stocks works like investment in any other stock. Start by opening a Demat and a trading account with a reliable stockbroking firm. 

Step 2: Conduct thorough research

Next comes research. Make sure you research companies issuing dividend stocks. You can do so based on their dividend yield or growth. Higher yield translates into more earnings. However, companies with higher dividend yields may have weak growth prospects. On the other side, dividend growth indicates how often a company increases its dividends. These stocks may have a lower yield, but the consistent increase in payout in the long run makes them attractive. 

Step 3: Select stocks

You can explore companies in different sectors like healthcare, technology, oil and gas, etc. Pick the ones with healthy finances and a record of paying dividends consistently. Also, assess your risk appetite and investment goals before choosing dividend-paying stocks. 

Step 4: Track your investments

Once you decide which stocks to purchase, keep an eye on the performance and financial health of companies in your portfolio. Companies that pay dividends today may not do so tomorrow. They may reduce or eliminate their dividends during a struggle. Hence, choosing high-quality dividend stocks of companies with strong performance and growth prospects is vital. You can withdraw or reinvest the dividend according to your needs and goals. 

Wrapping Up

Dividend payouts help companies attract more investors and maintain their trust. This may increase a stock’s demand and its price. As an investor, you can ensure a steady source of income by investing in dividend stocks. You can withdraw or reinvest the payouts to maximise earnings from your investments. 

However, like any other investment avenue, dividend stocks too involve risks. You must thoroughly research a company’s financial soundness and prospects before investing. Diversifying your portfolio and tracking your investments regularly also helps avoid losses. 

 

Trending Blogs: NSE Holidays 2024 | BSE Holidays 2024 | Invest in Small Cap & Mid Cap Mutual Fund & Stocks | Companies affected by Rise in Crude Oil Price | Fall in IT Stocks | Launch of 4 New Indices | Revised Lot Size of Nifty Contracts | Impact of RBI Circular on Currency Trading | RBI’s New Lending Guidelines | Electric Air Taxis in India

 

Financial Calculators: SIP Calculator | SWP Calculator | Compound Interest Calculator | EMI Calculator | FD Calculator | Retirement Calculator | Option Value Calculator | Inflation Calculator | Lumpsum Calculator

 

Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price

You may also like…

Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
Open Demat Account
I wish to talk in South Indian language
By proceeding you’re agree to our T&C