Best High Dividend Paying Stocks

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Invest in the best high dividend paying stocks today with Interactive Brokers.

Dividend-paying stocks have long been a part of investment portfolios geared toward providing income instead of long-term capital appreciation. But since companies that pay big dividends are often older, more established firms, they fail to garner the same attention as the latest high-flying growth stocks. 

Stocks that pay dividends are still a crucial part of any investment strategy, especially if you’re looking for consistent income. While the price appreciation might lag behind the broader market, dividend-paying firms have established profits and are usually safer investments than risky growth stocks. Still, a healthy dividend isn’t a golden ticket to wealth and investors must pay close attention to the underlying numbers of the business. A big dividend combined with poor cash flow or large debt loads could end up as a very poor investment.

Highest Dividend Stocks Right Now

An Overview of Dividend Paying Stocks

When a company makes a profit, it doesn’t just sit in the pockets of the CEO. When profits are announced, the company board has to decide what to do with the extra cash. Many companies reinvest the money into research or development to continue growing the firm, but some companies aren’t concerned with expansion or entering new markets.

When a company doesn’t have an internal use for its leftover profits, it will return those profits to shareholders in the form of a dividend. Most dividend-paying firms disperse dividend payments each quarter and you need to own the stock by the “ex-dividend date” to make yourself eligible for the payment.

Dividend calculations take in a number of factors, such as:

• Sales growth projections
• Plans for expansion
• Average dividend yield in the sector
• Debt levels
• Current and future cash flow

Be cautious of companies offering dividends that seem too good to be true. A stock with a 10% dividend might have just endured a steep price decline that makes the dividend yield look more attractive. Kinder Morgan is a popular example: At one time, the firm piled on too much debt and the pipeline company was forced to slash its dividend by 75%. The stock was crushed as a result, and the company became a “cautionary tale” for others because a loss of dividend yield led to a dearth of investment activity. As a shareholder, you owe it to yourself to know these stories, seek out the highest dividend payment possible and zero in on a share price that fits into your budget.

How can you be sure that you’re investing in the right stocks? You want to differentiate between ordinary dividends and qualified dividends. Ordinary dividends are taxed at the income level while qualified dividends are taxed at the capital gains level. For your dividends to be considered qualified dividends, you must hold the shares for at least 60 days. If you’ve held the shares for less than 60 days, you’ll receive the same dividend, but it will be taxed as income. 

You also need to spend some time researching how the business got to where it is. As mentioned above, you want to weigh the dividends paid or promised against the state of the company. There are certain companies that are safe to invest in and stay with because their dividends are “true”, but others may seem a little shady, especially if the yield seems like it’s too good to be true. Yes, you might profit just one time, but that asset may not be able to maintain its dividend payout ratio.

At the same time, you cannot assume that dividends will go on forever and ever. Even the best companies that you have researched to the nth degree are not perfect. There may come a time when a company stops paying dividends on its stock for one reason or another—and it’s not personal. They’ll just stop paying dividends because there isn’t any free cash flow for such a thing, meaning that those retained earnings are gone. Yes, the business retained some revenue and it may come back to dividends in the future, but there’s no guarantee.

For example, that company could be bought out and taken private. Yes, you’ll get paid for your holdings, but that long-term dividend is gone. Now you need to decide what to do with those funds and potentially uncover another firm that can offer the same sort of “regular” income. This is a key to investment management that points to the future, helps you plan for retirement and even create a dividend reinvestment plan. This is one of the simpler ways to generate passive income and can become part of your individual retirement account.

Best Online Brokers for Dividend-Paying Stocks

Dividend-paying stocks aren’t difficult to find since they often have long histories and popular stories. Since dividend-paying stocks are meant for long-term investing instead of short-term trading, finding a commission-free broker isn’t as crucial since you won’t be racking up transaction costs. 

Still, if you can avoid the temptation to overtrade, a commission-free discount broker is suitable for both investors with long time horizons and investors looking to day or swing trade.

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Best For

Active and Global Traders

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Active and Global Traders

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Interactive Brokers is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. You can buy assets from all around the world from the comfort of your home or office with access to over 150 global markets. Options, futures, forex and fund trading are also available, and most traders won’t pay a commission on any purchase or sale.  

IBKR is geared primarily toward experienced traders and investors but now with the availability of free trades with IBKR Lite, casual traders can also acclimate to IBKR’s offerings.

Best For

• Access to international markets
• Active traders
• Detailed mobile app that makes trading simple
• Wide range of available account types and tradeable assets

Pros

• IB SmartRouting provides significant price improvement vs. industry
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• Industry’s lowest margin rates
• Earn more by lending your fuly-paid shares

Cons

• Beginner investors might prefer a broker that offers a bit more hand-holding and educational resources

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Leveraged Trading

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Disclosure: 82% of retail accounts lose money

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82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Plus500 is an online CFD broker focusing on contracts for difference (CFDs). CFDs are similar to binary options in the U.S. where traders take all-or-nothing speculation on the prices of certain securities like indices, commodities or currencies. While not legal to trade in the U.S., CFDs are legal in many jurisdictions across the globe and Plus500 offers a wide array of tradable markets using these instruments. 

Plus500 doesn’t charge commission and only profits off the spread, which is the difference between the buy and sell price of a specific security. But Plus500 is not a broker for beginners — the education materials are sparse and CFDs are risky derivatives capable of sapping out all of an investor’s capital. Only trade these instruments if you understand how they operate and the risks involved with buying them.

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• Traders looking for a smooth mobile experience

Pros

• Great mobile app
• Low spreads and commissions
• Unlimited demo account

Cons

• Only derivatives are available
• Not open to U.S. residents

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Public is the only investing platform that lets you trade stocks, ETFs, crypto, bonds, options and alternative assets—like fine art and collectibles—all in one place. Public also provides access to custom company metrics, live shows about the markets, and insights from a community of millions of investors, creators, and analysts.

Today, Public provides more ways to create a diversified portfolio than nearly any other online broker. Members can engage in sophisticated investing strategies and access a wealth of investing insights—from company-specific analysis to live audio shows and town hall-style Q&As. In addition, Public offers a premium membership tier with unique company KPIs, detailed performance metrics, and institutional-grade research. 

 

Best For

• Stock and ETF investors
• Crypto investors
• Investors looking to diversify with alternative assets or bonds and options

Pros

• Commission-free stock and ETF trading
• Fractional share investing
• Advanced data, tools, and insights with Public Premium

Cons

• You can’t transfer crypto to another wallet
• No mutual funds or precious metals
• At this time, only offers individual brokerage accounts and not IRAs

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Commission-Free Mobile Trading

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Commission-Free Mobile Trading

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Robinhood is a popular trading platform known for its commission-free trades and user-friendly mobile app. Ideal for novice investors, Robinhood makes it easy to buy and sell stocks, ETFs and cryptocurrencies. The platform offers a straightforward, no-frills experience, making it accessible for users new to investing. With features like fractional shares and a sleek interface, Robinhood lowers the barriers to entry for investing, allowing users to start with just a few dollars. It lacks the advanced tools and research options that more experienced investors might seek. Overall, Robinhood is a great choice for beginners seeking a simple way to invest.

Best For

• Beginners looking for simplicity
• Mobile-first investors
• Commission-free trades

Pros

• User-friendly mobile app
• Instant double
• Cash management
• Access to cryptocurrencies

Cons

• Limited research tools
• No mutual funds available
• Basic customer support options

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Active Short Sellers

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Active Short Sellers

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TradeZero is an online broker and free stock trading platform that provides everything you need to successfully share and trade, including round-the-clock customer support. TradeZero provides four different trading state-of-the-art software programs with its services, a locator for sourcing shares for shorting, commission-free trades, and real-time streaming, to name a few of the features promoted on their website. The software is a unique and (potentially) affordable option for anyone interested in stock trading.

Best For

• Traders seeking high transparency and mobility in a stock trading program
• Those attracted to commission-free trades
• Those seeking a free version of a high-quality trading program

Pros

• 24/7 live customer support
• Uses ZeroWeb technology, a powerful level 2 online platform with direct market access
• Mobile app allows users to access stocks and trade in real-time while on the go

Cons

• Enforces Pattern Day Trading restrictions (accounts need to maintain a daily equity balance of at least $25k)
• Mobile app could offer more features

Features to Look for in Dividend Paying Stocks

Here are the most important things to look for before investing in high dividend stocks.

Manageable Debt Load

As with companies like Kinder Morgan, an unsustainable debt load could spell the end of a generous dividend. If a company is overleveraged and forced to service debts, the dividend is often the first thing on the chopping block.

Dividend Payout Growth

Since stock prices can fluctuate wildly, paying attention to the dividend yield doesn’t give us as much information as the actual payout amount. Keep a close eye on the growth of the dividend payment itself; if a company has a long history of increasing dividend payouts (10-20 years), it’s probably a good bet that it will continue to increase.

Enough Cash Flow to Keep Paying Dividends

This is perhaps the most important feature of any stock, let alone a dividend payer. Cash flow is king and without it, no company would be able to continue to pay its dividend. If a company you’re looking at has consistent cash flow concerns, it could mean the dividend is in trouble of being chopped.

Analyst Ratings

Analyst ratings can give you an idea of when or if dividends will continue. While analysts are not necessarily in the business of determining the value of your next dividend, they are researching the company closely enough that they have a decent idea of whether dividends will continue or not.

Dividends Provide Steady Income

Dividend-paying stocks are a great addition to portfolios because they’re often less risky than growth stocks. If you’re an investor approaching the end of your time horizon, dividend-paying stocks can provide steady income AND longer-term stock price appreciation.

But dividends aren’t free and tax implications exist for different types of payouts. Qualified dividends get special tax treatment like capital gains, but ordinary dividends are taxed at the income level. If you’re receiving ordinary dividends, a tax-sheltered account like a Roth IRA is the best vehicle.

Be sure to discuss taxes with an advisor before putting dividend-paying stocks into an investment account. Understand that dividend stocks aren’t going to make big headlines or double in price in just 6 months. If you want to buy dividend-paying stocks, you’ll need to hold them long enough to benefit from the consistent dividend payout increases. 

Frequently Asked Questions

Continue reading: BEST MONTHLY DIVIDEND STOCKS

The post Best High Dividend Paying Stocks by Dan Schmidt appeared first on Benzinga. Visit Benzinga to get more great content like this.