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If you’re interested in long-term investing and collecting regular earnings, dividend stocks are an excellent choice. From the pros and cons of investing in dividend stocks to how to get started, this guide breaks down four tips to keep in mind when investing in dividend stocks.

What Are Dividend Stocks?


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Dividend stocks are shares that a company has on the stock market that distribute regular payments to investors. Dividend stocks are typically shares in established companies with a history of profits and paying earnings to shareholders. Dividends come from a company’s earnings and occur on a regular basis — like monthly or quarterly payments.

Advantages of Investing in Dividend Stocks

Dividend stocks come with several advantages for investors. When you invest in dividend stocks, you get guaranteed regular payments in real-time. You won’t have to wait for the market to move in a profitable direction to drive stock prices higher. Dividend stocks usually pay on a quarterly or annual timeline.

Another advantage is that many dividend stocks pay a decent return and are usually higher rates of return than high-yield savings accounts or even a bank certificate of deposit. Though it’s possible for a company’s dividends to decrease here and there, it’s more common for the payouts to steadily increase over time.

Over time, dividend-paying stocks have been shown to provide returns that are comparable to the market as a whole, and they have produced those results with significantly less volatility. In other words, dividend stocks are safer. Dividend stocks lag on the way up, but they also tend to hold up better when the market goes down.

Drawbacks of Investing in Dividend Stocks

Several drawbacks are inherent in investing in dividend stocks. For one, since dividends ultimately are company earnings paid back to the shareholders, when profits go down, then your dividend amounts can reflect this decrease.

Another drawback is that dividends usually don’t provide enough diversification for investment portfolios. This is because the majority of companies that do pay dividends are clustered in industrial and utility businesses, which can reduce the ability for investors to diversify within this market. So if you’re investing solely in dividends, you could potentially miss out on a profitable way to diversify your portfolio with other types of stocks.

How to Invest in Dividend Stocks 

Get started by researching different dividend stocks that are out there. You can do this easily through an online trading platform where you can find and analyze specific stocks. Some dividend stocks worth considering include Chevron Corp., TC Energy Corp., and Principal Financial Group Inc. Once you find a dividend stock you want to invest in, evaluate its performance, including its percentage of distribution, payment timelines, and the performance of the stock.

Essentially, you want to look for dividend stocks that show potential for regular earnings over time, and you’ll want stocks that have a proven track record of paying out dividends to shareholders. You can also speak with an online broker who can help you navigate the best way to invest in dividend stocks.