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Delight in Dividend-Paying Stocks

Seek out these relatively stable and less stressful investments.

By
Laura Adams, MBA
3-minute read
Episode #119

Choosing Dividend Stocks

So even though dividend stocks sound like they dish out free money to investors, choosing the right ones is important. They need to be well-managed with a sensible plan regarding dividend payments. Stocks with a solid dividend history, like Kellogg or Johnson & Johnson which are paying 3.47% and 3.58% right now, may be able to maintain or even raise their payouts to keep pace with inflation.

You can research good dividend stocks for free at sites that have a stock screener such as MSN Money or Google Finance. There are also many services and publications that will spoon-feed them to you for a monthly subscription fee. Consider Morningstar.com, InvestorsDailyEdge.com, and Dividend.com for well-researched and timely dividend advice.

Buying Dividend Stocks

Another way to take advantage of dividend stocks is to reinvest the dividends by buying more stock shares. That allows you to systematically increase your holdings without having to invest money out of pocket. But remember that there is no guarantee that a dividend-paying stock will be able to maintain its payout indefinitely. In order to grow earnings, a company may have to reduce or eliminate dividends during challenging times.

And one final tip about dividend stocks: since dividends are taxable income, a great way to buy dividend stocks is within a tax-advantaged account such as an IRA. A traditional IRA doesn’t eliminate taxes, but it does defer them until you retire or make other qualified withdrawals from the account. 

As with all things in life, moderation is usually the key to success. If you gravitate toward risky investments with huge upside potential, consider buying some less-risky dividend stocks for balance. Even if income investing sounds too old-fashioned or conservative for you, adding them to your portfolio can help to smooth out market volatility.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.