Investing in High Dividend Stock Market Funds | Hot Stocks ...

Investing in High Dividend Stock Market Funds

Article by Van Beek

Finding the right dividend stock investing strategy takes time, effort and some research. But for those willing to make the commitment, there can be high rewards. One strategy used by those investing in stock concerns focusing on the dividend. Given today?s volatile stock market, investing in companies that yield a high dividend may at first seem like a sound investing strategy, but there are potential pitfalls for those who go too far in that particular field.

What is a Dividend?

Basically, when a company makes money, it will sometimes give a share of that profit back to their owners in the form of cash dividends. Someone who does dividend stock investing will also receive a share of that money in terms of passive income. That is, every month the company makes money and gives back to the owners. When the strategy is followed correctly, this can be a good source of retirement money and you may even hit the jackpot and become rich, but those who do are generally few and far between.

For those who want to get into dividend stock investing, the general strategy is to find the companies that have an established track record of paying the highest dividend amount over a period of time. This seems simple on the surface, but finding such companies are not all that easy. Plus, there may be other reasons why the company has such high dividends that do not make for good investments.

One good example why companies may want to pay out high dividends is because investors may want to avoid the stock shares, meaning they believe the company is in serious trouble. And many times, they are right.

Some general tips of what to look for when dividend stock investing begins with looking at the dividend payout ratio; you don?t want it to be much above 60%, which means the company is retaining a large amount, perhaps for future expansion which will cut the dividend earnings drastically.

You?ll also want to invest in a company that has good pricing power; the ability to raise prices to help offset potentially high inflation rates which can drain profits from dividends. Also, you?ll want to look for debt to equity ratio of less than 50%, which means for every dollar of net worth, the company has a dollar or less in debt. Finally, to get some additional protection in case the dividend is cut, you?ll want to invest in stocks that have a p/e ratio of 15 or less. This added protection can come in handy in case the unexpected happens.

The main risk with investing in dividend stocks is the same as with investments in all stocks. Markets could crash. And then it could take a long time before your dividend stock is back on the price level where you bought it.

By following sound strategies, there are good profits to be made for those who can identify the right dividend stock investing strategies and mix them with a broad base of other types of funds and stocks that will provide solid profit without the risk of putting all of their money in one basket.

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For more information on dividend stock investing, follow this link: http://www.stocktrendinvesting.com/blog/dividend-stock-investing

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