Why Dividend Paying Stocks Should Be Included in Your Investment Portfolio

There are many vehicles for generating income within an investment portfolio.  Conservative, generally low risk options such as bonds and treasuries may be preferable to the investor who is risk averse or who is more interested in capital preservation over growth potential. 

For those who have a relatively high tolerance for risk and are not opposed to stock market investing for return on investment, choosing stocks that pay high dividends and selecting dividend funds may offer greater benefits over stocks that do not pay dividends.  

Dividends are payments made to share holders as a means to share corporate profits.  Dividends are generally paid quarterly to share holders and the pay outs usually vary from one quarter to the next.  There are several factors that determine the amount of a dividend payment, including, but not limited to, the company’s earnings growth per share, expenses and future profit estimates, or guidance. 

Stocks that pay high dividends and dividend funds can be located by most stock screening software on the internet or through the assistance of a brokerage firm.  When searching for such investments and their related dividend pay outs, it is important to look at the dividend yield, not just the actual cash dividend payout.   

Stocks that pay a dividend yield over three percent are most preferable, but caution should be exercised when selecting stocks with a dividend yield of over seven percent as the possibility of subsequent stock price depreciation is present as a large portion of profits are lost to dividend payments.

By retaining dividend paying stocks within an investment portfolio over the long term and utilizing the principal of dollar cost averaging, an investor can experience growth potential beyond what is typically associated with more conservative investments.  As with all investment endeavors, however, investors are well advised to seek the guidance of financial professional.       

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