Stock Market

Dividend Stocks – What Are They, How to Trade Them, and Why Should We Buy

A dividend stock is any stock that pays the shareholder a dividend or a share of the profits of the corporation. The reason an investor wants to include dividend stocks in their portfolio is they can be a great source of passive income. Once you buy a dividend paying stock every quarter you will receive a check based on the current dividend payment.

What Exactly Are Dividend Stocks?

Dividend stocks can be either common or preferred stocks, for the purpose of collecting dividends there’s often an advantage to preferred stocks over common stocks. First of all preferred stocks are paid dividends before common stock dividends are paid. In sluggish cash flow situations dividends may get paid on preferred stocks where the common stock may forego dividend payments more easily.

How do We Trade Dividend Stocks?

Dividend stocks are traded in the same way any common or preferred stock is traded, but the goal is often different when trading dividend stocks. When investors day trade stocks rather than hold them for collecting dividends, the goal is to buy low and sell high. But when investors trade dividend stocks the goal is to buy when the stocks are paying high dividends and sell when the dividend payments begin to slip.

Dividends are not Always Paid

One fact that investors must be aware of is that stocks, even those with a history of paying dividends, don’t always pay those dividends. If the company is having cash flow problems it’s very likely that common stock dividends will not be paid, and even possible that preferred stock dividends may be withheld.

Should We Buy Dividend Stocks

Most experts agree that some dividend stocks belong in almost every portfolio. While dividends are more complex than simple stock trades the savvy investor will use them wisely to create passive investment income.