Dividend Stocks: An Investment for Tough Times

It's easy to invest in stocks when times are good. Most stocks you might pick will be on the rise. But when the market falls as it will from time to time, it's harder to invest. The small investor particularly will have a hard time when the stocks he bought go down within a week's time.

One strategy often recommended is to put your money in dividend stocks--- stocks that regularly pay a dividend. In particular those stocks showing a steady path of dividend growth are highly to be desired.

With a non-dividend stock, you are hoping that some day the price of the stock will go up, and you can sell it at a profit. With a dividend stock, in addition to that possibility you are paid a dividend per share. Most of the time you will get your dividends four times a year.

With the addition of dividend income, you can be less worried when the stock price is going down because you are still getting your dividend income. In addition, companies that regularly pay dividends tend to be steady. The fact that they pay dividends shows that they are turning a profit and can afford to pay dividends.

Some companies have a very long history of paying dividends. Coca-Cola Co. has been doing it since 1883, and Pfizer since 1901. These companies are very likely to continue to pay dividends.

A good research source for dividend investing is Dividend.com, which provides information and ratings on all the best dividend stocks, updated daily. The information on this site was previously free, but now some aspects, such as ratings, are part of a premium service that many of us can't afford. It is still a good resource for the investor.

Many lower-income people have never yet invested in stocks and are not sure how to go about it. One resource is the online broker Sharebuilder.com. This broker allows you to invest small amounts of money by automatic investments, scheduled for Tuesdays. You can invest a hundred dollars in a chosen stock or ETF (exchange traded fund) each month--- or each week if you have the funds. Stocks are bought by the dollar amount rather than by shares.

One good practice for the dividend stock investor is to reinvest the dividends. Sharebuilder allows this very easily and without extra charge. When your dividend is paid, the money is invested in the stock the dividend came from--- even if the dividend is only a few cents you get a fraction of a share worth that amount. In this way, your dividend stock portfolio will grow automatically.

The dividend stock approach gives the investor a whole new way of looking at bad times in the stock market. Because you are interested in the dividends as well as the stock price, a bear market is a time when you can buy more shares of dividend producing stock often at a lower price. Even if the price of your stocks doesn't rise as quickly as you would like, the dividends still provide profit.

It's important to mention at this point that all investment involves risk, and so all investments should be researched as well as possible before you make them. Continuing research is also necessary to learn if one of the companies in which you have invested is in trouble financially. You may decide you need to sell a troubled stock before it loses more value. But given the proper diligence, over time stock market investing outperforms other forms of investing, and good dividend stocks tend to perform particularly well.

References:

Klugman, Roxann - The Dividend Growth Investment Strategy

Dividend.com - http://www.dividend.com/

ShareBuilder from ING Direct: Investing Made Easy - https://www.sharebuilder.com/sharebuilder/Default.aspx