Where can I find the best dividend paying stocks?
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In my experience in seeking the best dividend-paying stocks, I can conclude there is no one great place to find the best dividend-paying stocks. That comes through much research from several different resources, which is why some investors choose to leverage an advisor to help them with this task.
However, I can answer part 2 of your question about the advantages of dividend-paying stocks. I also wrote an article earlier in 2016 that was featured in the Wall Street Journal (see article here ) that could also be a good resource for you. But, dividend-paying stocks can be advantageous to investors, especially those seeking income, because that is the essence of those dividend payers. Dividends are based on the number of shares you own, not based on the stock price. So while the stock price will fluctuate daily, the dividends paid can be much more consistent. Some companies go decades without a dividend decrease, keeping the income that spins off stable. For those that take dividends in cash or those that do not want to draw down the principal, this can be a positive benefit.
So, you must understand that there are two ways to make money with stocks – dividends and price appreciation. We all know how the price appreciation part works, but I think the dividend part is misunderstood. If you are not taking income for your portfolio, you can also reinvest these dividends to ultimately buy more shares. More shares equals more eventual income down the road (because dividends are based on the number of shares you own).
But, although dividend-paying stocks have performed well in recent years, there is not always a guarantee that they will do so. Also, picking the right stocks can be the most difficult part. It s important to not always go for the highest yield because companies can become overly stretched on their payout ratios and they come to a point where there current track cannot be maintained. This can be followed by massive cuts in the dividend per share, usually followed by massive declines in the stock price (see COP in the fall of 2015).
As I always say, the stakes are high in this game of investing. It s important to consult with a qualified investment professional before making any decisions. Dividend stocks are not right for everyone and they do carry risks. It s important to understand all of those risks before taking any action.
Joe Allaria, CFP
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