How to Invest in Dividend Stocks
To invest in dividend stocks, you should do research into which dividend stocks you want to invest in. You do want to find stocks that offer a high yield. You also want companies with a long track record of paying out their dispute on a consistent basis, while also increasing their dividend as well. There are plenty of companies that pay good dividends and meet these criteria, it's just a matter of choosing which stocks are right for you.
SCREENING FOR BLUE CHIP STOCKS
I like to keep it simple by choosing blue chip stocks to invest my money in. If you do not want to put a ton of research into building your portfolio, it does not hurt to look at the list of Dividend Aristocrats, and then choose a stock or two from each sector that you're at least somewhat familiar with. For example, chances are that you have a good understanding of Walmart, McDonalds, Microsoft, Exxon-Mobil, Wells Fargo, Verizon, etc. and how their businesses operate. You can also use Google Finance's nifty little "stock screener" tool which allows you to narrow down your list of potential dividend stocks.
The screener allows you to pick a sector, and then narrow the stocks down by market cap, P / E ratio, 52w price change, and dividend yield% (which you have to manually add via the "add criteria" button). I leave the P / E ratio and 52w price change settings as the default, and then change the market cap minimum to companies at 10B or higher, since I'm interested in large, blue chip stocks. I then set the minimum div yield (%) to 2.50%, since that's the yield range I'm looking for. Then, when you go through each sector, Google will spit out a list of stocks that meet your criteria. It is then up to you to choose which companies you feel most comfortable investing in.
I would choose at least 10-12 individual stocks to start your dividend portfolio. Some people might recommend upwards of at least 30 stocks, again, to spread out and minimize your risk. Let's say I was creating a portfolio from scratch, and wanted to choose 12 dividend stocks to get going. If I followed my screening criteria above, here's what my portfolio might look like:
DD, LMT, LEG, MO, XOM, JPM, JNJ, MCD, VZ, INTC, UPS, KMP
Here we have hit on most if not all of the sectors, have chosen all blue-chip, well-known companies, and have a yield from each one at least 2.50%. This is a great starting point (although it is only an example).
LONG TERM INVESTMENTS
The thing to remember about investing in dividends is that these are long term investments. You are not trying to make a quick buck by buying and selling these stocks frequently. If you want to earn income from your dividends and watch your portfolio grow, you have to be extremely patient with this kind of investment – we are talking 10, 20, or even 30 years or longer. You need that kind of time to allow the magic of compound interest to take hold.