Trading 101: Dividends Stocks

Dividend stocks are a great way to get regular income from your investments. Savvy investors are always on the lookout for the best dividend stocks out there, but during these pandemic-driven economic downtimes, what are the best dividend stocks out there now?

Dividends have fallen the greatest since WWII according to Link Group who say British dividend payouts will not go back to pre-covid times for around five years. Last year saw a 44% loss in dividend payout equating to £40 billion in income. So although there is a more frugal market, there is still lots of opportunity to get regular income from your dividends. 

Why invest in dividend stocks?

Dividend stocks are an opportunity to get regular income from your investments. Dividend stocks are companies that pay out a portion of their earnings to a class of shareholders on a regular basis. This way you can get a little back as the stock grows over time. Most people who invest in dividend stocks aim to hold them over the long-term, therefore paying attention to strong and stable growth rather than temporary erratic shifts in price will direct you to the most sustainable dividend-based income.

The best dividend stocks are typically well-established companies with a good history of giving back to shareholders. Companies with a history of strong fundamentals, increasing dividend payouts and a bullish trend often provide the best dividend income. 

To get the biggest returns on your investment, holding stocks for a long time and reinvesting the dividends you receive from them will sustain growth.

What to look out for for a high dividend yield

Often stocks that are falling will increase their dividend yield to compensate, so this is something to look out for. 

Also look for:

• A low payout ratio of 60% or less indicates a dividend is sustainable. The payout ratio is the dividend per share divided by the earnings per share. 
• A strong history of raising dividend value even during tough economic times like the recession or COVID pandemic.
• Stable growth of revenue and earnings as this indicates a safe place to invest in long-term. 
• Having a competitive advantage that will last, such as a powerful brand name is a good indicator the company will succeed long-term. 

How to trade dividend stocks?

Before we go into which dividend stocks you should buy, you will need to open an account with a broker to manage your investments. 

Choosing the best online stock broker can make the difference from an easy and exciting new experience to  constant frustration and disappointment. Accessing financial markets through online brokers is easy and inexpensive but there are so many out there tailored to a different sort of customer so choose the right broker that will optimise your user experience and profits. 

If you’re just starting out we recommend eToro and easyMarkets for their easy to use interfaces and fee -free trading!

We recommend eToro and easyMarkets for beginners. 

Top dividend stocks

Proctor & Gamble (PG) is the creme de la creme of consumer product manufacturing. They have a great history of giving dividends: over the past 63 years the company has increased its payout each year! This is a great stock to invest in due to its stability, the products they produce are essentials so will continue to do well no matter how the economy performs. 

AT&T (T) is a telecom giant and like P&G has increased its dividend every year for around half a century. AT&T’s recent moves to enter the entertainment industry could provide a powerful growth move. 

Chevron Corp. (CVX) has an annual yield of 4% which greatly beats the average yield of the S&P 500 (1.9%). Their quarterly payout is generous at $1.19 per share. 

QUALCOMM Incorporated (QCOM) is a leader in the semiconductor and 5G industry. This stock has a strong history of buying signals meaning it is on an upward trajectory. It is even showing a 11.3% monthly gain. Institutional investors have done a lot of buying over the past year (green bars), indicating this stock is on the rise. 

Currently QUALCOMM are giving out $0.65 dividend per share. 

International Business Machines Corp. (IBM) have one of the highest dividend payouts out there at $1.63 per share and a fairly good dividend yield of 5.14%. They have also proven they can ride out the pandemic. 

Microsoft (MSFT), one of the largest companies in the world, has been increasing its subscription-based revenue streams which is great for dividend investors! Currently the dividend yield is around 0.97% equating to an annual dividend of $2.24 per share.

M&G (MNG) are a British investment company that was only listed on the LSE in 2019, meaning it is fresh to the dividend game. With a dividend amount per share shanding at almost 11% for 2020, this company should surely be on your watch list. 

UnitedHealth Group Incorporated (UNH) are a leading health insurance company. Although their month’s performance is only slightly positive at 0.54%, there is a three-year dividend growth rate of 18.9% and a current dividend per share of $1.25. We can also see a strong interest from institutional investors below. 

Invest in these stocks now with eToro and easyMarkets. Now you know about the top dividend stocks, take advantage of this good buying opportunity to achieve a long-term regular income. Based on high growth prospects, strong financials and generous dividend payouts investing in these top dividend stocks will give a tidy income. Kickstart your trading journey with BullBear now.

*Tax: Dividends from UK companies generally don’t have tax deducted at source, but dividends from foreign companies might – it depends on their local rules. At present, in the UK the first £2,000 of dividends is tax-free, whatever rate of tax you pay, with the excess taxed at 7.5% for basic-rate taxpayers while higher and additional rate taxpayers pay 32.5% and 38.1% respectively. Although if you get dividends from a Stocks and Shares ISA then you will not be taxed at all.