It's no secret that dividend stocks are one of the best ways to make passive income. When chosen correctly, they can provide predictable income and stability. Today's post is a guide on dividend stocks for beginners.
Disclaimer: I am not a financial consultant. As always, you should consult a financial advisor and do your own research before investing in the stock market.
If you're unsure of how to get started in the stock market, start at my step by step tutorial here.
To start investing in the stock market today, I recommend Robinhood for a beginner investor. No commission fees and free trades, which means you can't go wrong as there are no “catches”! Trust me, I've been using the platform for 3 years in addition to my other brokerages. For normal stock trading, it's a very simple platform to use and it's quite fun! If you'd like to open an account, you will receive a free stock by clicking my link here.
If you've gotten your feet wet in stock investing and you'd like to dive deeper to figure out what stocks to invest in and what to look for, this article is for you!
Other articles you'll enjoy:
- Robinhood Stock Trading Beginner’s Guide (Get a FREE Stock)
- What is a 401k and Do You Need it NOW?
- Financial Cookbook Easy to Understand Financial Definitions
What Stocks Should You Invest In?
As a beginner investor, you'll want to make sure you invest in stocks that have future growth potential and will be a good bang for your buck.
It's good to look for stocks that have a strong balance sheet and good earnings over the last 10-20 years. We'll dive into that more below!
A good way to hedge your investment is by looking into dividend stocks.
What are Dividend Stocks?
A dividend stock is a company's stock that gives dividends to their shareholders on an annual, bi-annual, or quarterly basis.
A dividend is essentially money that is paid to you as a shareholder. (Can anyone say free money!?)
Typically, this dividend will be placed back into your stock investment, but you can also redeem it as cash. (This is an option that you will specify in your brokerage, but it typically defaults to re-investment. In my experience, I like to have the dividends reinvested for the best return.)
Why are Dividend Stocks Appealing?
Dividend stocks sometimes can provide a bit more stability in a rocky market. Although companies can halt their dividends during an unstable economy (like COVID-19), most companies will do whatever they can to make sure they can distribute dividends to their shareholders to protect their share prices.
A dividend stock can bring income in 2 ways: through dividends and through share price. Therefore, they can sometimes offer a nice return on investment, especially when they increase over time.
Keep in mind though that a company cannot pay out dividends without altering its current stock price.
How to Look for a Good Dividend Stock
If you're new to investing and to dividend stocks, it can be a bit overwhelming. However, dividend stocks for beginners in the stock market are a great way to get your feet wet. You should do thorough research to determine the investments you'd like to make.
Some things to consider when looking for a good dividend stock are below.
To view other financial explanations, visit my dictionary of easy to understand definitions.
- Payout ratio– The payout ratio of a stock is the amount of money in dividends per share divided by its earnings per share.
- Dividend History of Increases– Look at the history of the dividend payouts over the last 10-20 years. If the company has consistently raised its dividend each year, that's a good sign.
- Company Earnings Growth: Look for companies with strong earnings growth over the years. If revenue isn't consistent, that may be a red flag you need to consider.
- High yield: If the first three criteria pass the test, this is the last thing to think about. The yield is the dividend payout divided by the share price. A high yield is great, but it can sometimes mean there may be some red flags in the corporation that you need to watch for. (The old saying goes that sometimes if it's too good to be true, it is.) You want to make sure you choose steady dividend stocks with strong balance sheets, growth and potential.
A dividend payout is great, but if the share price drops because the company wasn't stable, you'll lose your investment anyways. Therefore, you want to make sure you are investing in solid corporations.
Dividend Aristocrat Stocks to Consider in 2021
Disclaimer: I am not a financial consultant. As always, you should consult a financial advisor and do your own research before investing in the stock market.
Not sure where to start? A good and safe place to start with dividend stocks for beginners is by referencing the Dividends Aristocrats list, from the S&P Indices.
To be a Dividend Aristocrat, the corporation must meet 3 criteria:
- Be in the S&P 500
- Meet a certain size requirement
- Most importantly, the corporation must have increased their dividend payout every year for the last 25 years.
This means that every company on the list distributed dividends in times of good and bad (including COVID 19). Therefore, Dividend Aristocrats could be strong companies to consider investing in.
As of 2021, there are currently 65 companies on the Dividend Aristocrat list.
Here are 5 of the Dividend Aristocrat stocks you may want to consider in 2021. Again, always consult a financial advisor before investing.
(Hint: See if you can pick up on the trend for each of these companies)
1.) Johnson & Johnson (JNJ)
Johnson & Johnson has been around for over 130 years. They sell medical devices, skin care products, baby care products, pharmaceutical products, etc.
They own well-known brands like Neutrogena, Band-Aid, and Neopsporin.
Their products are needed by consumers even during times of crisis.
2.) Lowe's
Lowe's is a popular home improvement store based out of North Carolina. They have locations all across the nation.
Lowe's provides home repair essentials and other home needs. Therefore, the items they sell are needed at all times.
They are considered an essential business. (I probably went to Lowe's 278 times during COVID-19 quarantine and it was always PACKED.)
3.) Proctor & Gamble (PG)
Proctor & Gamble provides consumer goods in five different sectors:
- Beauty
- Grooming
- Health Care
- Home Care
- Family Care
P&G owns (what seems like) everything. They own companies like Pampers, Bounce, Luvs, Downy, Gain, Tide, Charmin, and Always.
The majority of their items are things people need, even in times of crisis.
4.) 3M (MMM)
What does 3M do? I think the question is what doesn't 3M do.
3M makes products you probably had no idea were made by them. They produce adhesives, scotch tape, consumer electronics products, post-its, sponges, and command hooks (I'm sure you know those!), etc.
Again, these products are considered essential for consumers as people continue to purchase these things through hard times.
Everyone still needs a sponge!
5.) Coca-Cola (KO)
Coca-Cola is another company that's been around for a very long time (over 130 years). The brand is extremely well known across the world and some may even say iconic.
Coca-Cola sells more than just soft drinks. They own many water bottle, tea, and juice companies as well.
The net-net here is that people will continue to buy Coca-Cola products because they are loved and cherished even during harder times.
Dividend Aristocrat Stock Trends
You may notice a trend with the above 5 stocks I mentioned.
Yep, you guessed it!
They all are essential to life, even in difficult times like COVID-19. Look for companies that will not suffer financially (as much) during economic downturns. These may be good choices for dividend stocks for beginners.
You want your hard-earned money to be protected as best as it can be to provide a fruitful return on your investment in the future.
High Dividend Yield Stocks
In addition to some of the Dividend Aristocrats I mention above, I've put together a list of other dividend stocks you may want to consider.
All of these dividend stocks have a dividend yield over 4%.
As a reminder, just because a stock has a high yield, doesn't mean it will make a good investment. You will want to consult the items I mentioned above to find a good dividend stock that meets criteria for success and speak to a financial advisor.
Disclaimer: As always, you should consult a financial advisor and do a great amount of research before investing.
| Company | Symbol | Share Price | Div/Qtr | Times/yr | Yearly Div/share | Div Yield |
| AT&T | T | $28.64 | $0.52 | 4 | $2.08 | 7.26% |
| B&G Foods, Inc. | BGS | $33.14 | $0.48 | 4 | $1.90 | 5.73% |
| BP P.L.C. | BP | $21.87 | $0.31 | 4 | $1.24 | 5.67% |
| ExxonMobil | XOM | $44.96 | $0.87 | 4 | $3.48 | 7.74% |
| Hewlett Packard Enterprise | HPE | $11.97 | $0.12 | 4 | $0.48 | 4.01% |
| International Business Machines | IBM | $128.99 | $1.63 | 4 | $6.52 | 5.05% |
| Iron Mountain | IRM | $28.54 | $0.62 | 4 | $2.47 | 8.65% |
| Lumen Technologies | LUMN | $10.51 | $0.25 | 4 | $1.00 | 9.51% |
| Micro Focus | MFGP | $5.71 | $0.56 | 1 | $0.56 | 9.81% |
| Pfizer | PFE | $37.06 | $0.39 | 4 | $1.56 | 4.21% |
| Realty Income Corporation | O | $58.90 | $0.24 | 12 | $2.82 | 4.79% |
| Seagate Technology | STX | $60.11 | $0.67 | 4 | $2.68 | 4.46% |
| SpartanNash | SPTN | $17.94 | $0.19 | 4 | $0.76 | 4.24% |
| The Kraft Heinz Company | KHC | $33.70 | $0.40 | 4 | $1.60 | 4.75% |
| WP Carey, Inc. | WPC | $66.86 | $1.05 | 4 | $4.18 | 6.25% |
Dividend Stocks for Beginners
Hopefully this article has helped get your feet wet in the world of dividend stocks. A dividend stock is a great place to start a search for stocks to invest in as a beginner stock investor.
If you haven't started your investing journey, you'll want to start with my step by step tutorial on stock investing for beginners to get you up and running today.
Get a FREE Stock with Robinhood today by clicking here! Buy a dividend stock within minutes or maybe your free stock will be a dividend stock! Even better!
Other articles you may enjoy:
- What is a 401k and Do You Need it NOW?
- Robinhood Stock Trading Beginner’s Guide (Get a FREE Stock)
- The Financial Cookbook Easy to Understand Financial Definitions
Disclaimer: I am not a financial consultant. As always, you should consult a financial advisor and do your own research before investing in the stock market.
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