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Dividend stock investing guide


dividend stock investing guide

The Ten Commandments of Dividend Investing · 1. Thou Shalt Not Covet Thy Neighbor's Yield · 2. Thou Shalt Always Reinvest Dividends · 3. Honor Thy Tax Implications. Cash Or Stocks Dividend Option? A company can choose to pay out dividends in the form of cash or shares of stock. Both should be of the same. In this book you'll learn: The four reasons why everyone needs to own dividend stocks and how they can help you reach financial freedom. (pg. 8) One group of. BETTING 2000 CONTATTI

If a stock has been kicked out of the top 10, sell it and replace it with the new stock. Now, sometimes, the price of a stock will appreciate. Remember, though, that this strategy is not fool-proof. But you just need to have the conviction and confidence that you will see greater returns by following Dogs of the STI in the long run. Seat back and wait for your dividends, of course. Whenever a company elects to pay dividends, the decision has to be approved by the Board of Directors.

This process has four key milestones that investors should note: Declaration Date This is the date when the dividend payout is announced. The next two dates below are determined on the declaration date. Ex-Dividend Date This is the cutoff date by which an investor must become a shareholder to be entitled to the dividend. An example: Company A announces a dividend for its shareholders. If you purchased the stocks of Company A after the Ex-dividend date , you will not receive the dividend payout this round.

Instead, the shareholder who sold the stock to you would be receiving the dividend. Some investors would ask if it makes sense to buy before the ex-dividend date, collect the dividend then sell the share.

Chris Ng shares his view on this strategy and backs it up with data from research papers. Date of Record Usually 2 days after the ex-dividend date, the date of record is when the company looks at its list of shareholders to determine who will be receiving the dividend.

Payment Date This is the date when you will receive your dividends. As a shareholder, you can choose to collect these as income or reinvest these into the company. Check with your broker on your options.

Companies may have common stocks and preferred stocks. One of the vital differences between these two forms of stock is how dividend payments are treated. Payments to preferred stockholders always have priority, and all obligations to preferred stockholders must be met before profits can be paid to common stockholders. Property Dividends Occasionally, the profits of a business are disbursed to shareholders in some form other than money. These dividends can be literally anything from shares of a subsidiary company, physical commodities that the business trades in, products it creates, or even assets it owns.

Property dividends recorded in the accounts based on their market value on the day the dividend is declared. Special Dividends Dividends usually pay off in a consistent and predictable fashion, but exceptional circumstances may lead to a company paying out a special dividend. Major cash surpluses coming from asset liquidation, divestiture, or litigation can lead to one-time dividends. One-time dividends be in the form of cash dividends or property dividends. If you prefer to learn directly from someone who has done it all, Christopher Ng will be sharing his personal dividend investing strategy that allowed him to retire at 39 years old, bring up his children, take a law degree, start his own business and more, all on a sustainable dividend payout.

However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Looking for an investment that offers regular income? High-dividend stocks can be a good choice. What are dividend stocks? Dividend stocks distribute a portion of the company's earnings to investors on a regular basis. Most American dividend stocks pay investors a set amount each quarter, and the top ones increase their payouts over time, so investors can build an annuity-like cash stream.

Investors can also choose to reinvest dividends if they don't need the stream of income. Here's more about dividends and how they work. Companies that pay dividends tend to be well-established, so dividend stocks may also add some stability to your portfolio.

That's one reason they're included on our list of low-risk investments. Dividend ETFs or index funds offer investors access to a selection of dividend stocks within a single investment — that means with just one transaction, you can own a portfolio of dividend stocks.

The fund will then pay out dividends to you on a regular basis, which you can take as income or reinvest. Dividend funds offer the benefit of instant diversification — if one stock held by the fund cuts or suspends its dividend, you can still rely on income from the others. Learn what it is and how to start earning it.

And that difference can really add up. In general, a good rule of thumb is to invest the bulk of your portfolio in index funds, for the above reasons. But investing in individual dividend stocks directly has benefits. Although it requires more work on the part of the investor — in the form of research into each stock to ensure it fits into your overall portfolio — investors who choose individual dividend stocks are able to build a custom portfolio that may offer a higher yield than a dividend fund.

Expenses can also be lower with dividend stocks, as ETFs and index funds charge an annual fee, called an expense ratio, to investors. Find a dividend-paying stock. You can screen for stocks that pay dividends on many financial sites, as well as on your online broker's website. We've also included a list of high-dividend stocks below.

Evaluate the stock.

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We also analyze an increasingly important alternative to cash dividends, a stock repurchase. Managing Changes in Dividend Policy Last Updated on Sat, 05 Dec Finance Analysis In chapter 10, we noted the tendency on the part of investors to buy stocks with dividend policies that meet their specific needs. Thus, investors who want high current cash flows and do not care much about the tax consequences migrate to firms that pay high dividends those who want price appreciation and are concerned about the tax differential hold stock in firms that pay low or no dividends.

One consequence of this clientele effect is that changes in dividends, even if entirely justified by the cash flows, may not be well received by stockholders. In particular, a firm with high dividends that cuts its dividends drastically may find itself facing unhappy stockholders. At the other extreme, a firm with a history of not paying dividends that suddenly institutes a large dividend may also find that its stockholders are not pleased.

Comparable Firm Approach to Analyzing Dividend Policy Last Updated on Sun, 25 Aug Finance Analysis So far, we have examined the dividend policy of a firm by looking at its cash flows and the quality of its investments. There are managers who believe that their dividend policies are judged relative to those of their competitors.

This comparable-firm approach to analyzing dividend policy is often used narrowly, by looking at only firms that are similar in size and business mix, for example. As we will illustrate, it can be used more broadly, by looking at the determinants of dividend policy across all firms in the market. Mon, 06 May Corporate Finance Because investors do not need dividends to get their hands on cash, they will not pay higher prices for the shares of firms with high payouts.

Therefore firms ought not to worry about dividend policy. They should let dividends fluctuate as a by-product of their investment and financing decisions. Most corporations must pay taxes on their incomes. Corporate taxes are separate from the taxes paid by shareholders on dividends received from the company. Some corporations, however, especially smaller ones, are not taxed separately.

Another disadvantage is that corporations are regulated by various state and federal government agencies. These regulations require corporations to comply with many state and federal rules concerning business practices and reporting of financial information. Corporations must file many reports with government agencies and make public disclosure of their business activities. Compliance with these regulations is costly.

Also, some of the required disclosures may be helpful to competitors. Partnerships and proprietorships are regulated also, but the degree of regulation normally is much less than for corporations. Environmental Management And Shareholder Value Creation Last Updated on Tue, 03 May Environmental Finance Firms with poor environmental management, therefore, can be expected to pay higher rates of interest than others, due to the increased risk of environmental liability in the eyes of its investors.

This results in a higher cost of debt and larger debt obligations, thus reducing residual earnings that provide a return to equity holders and destroying shareholder value. Return to equity holders consists of dividends paid by the firm as well as the appreciation of the firm's stock price. As with the cost of debt, the perceived level of risk borne by the investor also drives the cost of equity. Exhibit 26 Types of Bond Covenants Last Updated on Thu, 05 May Tracking Portfolio Dividend covenants are beneficial in preventing a manager from leaving bondholders penniless by simply liquidating the firm and paying out the liquidation proceeds as a dividend to shareholders.

Bondholders view even a partial payment of dividends as a liquidation of a portion of the firm's assets thus, dividends per se are detrimental to bondholders. Simply prohibiting dividends, however, is not likely to be a good policy because it might cause the firm to waste cash by investing in worthless projects instead of using the cash to pay dividends.

Kalay described the typical form of a dividend covenant a formula that defines an inventory of funds available for dividend payments. The inventory will depend on the size of earnings, new funds derived from equity sales, and the amount of dividends paid out so far. These dividends are therefore paid out of after-tax income. Table 2. The tax rates in Table 2.

But financial institutions are major investors in shares and bonds. These institutions often have special rates of tax. For example, pension funds , which hold huge numbers of shares, are not taxed on either dividend income or capital gains. Balance Sheet Income Statement. The year-end balance sheet of Brandex Inc. The next year, retained earnings were listed at 3,, The firm's net income in was , There were no stock repurchases during the year.

The December 31, , balance sheet showed , and 7. The PCF lists the exact names and quantity of the underlying securities and cash that need to be turned in by an AP to receive one creation unit. Cash is part of the list because it often represents the accumulated stock dividends in a portfolio that have yet to be paid or a portion of the fund that is invested in nonliquid securities. Nature of accounting capital Last Updated on Tue, 13 Aug Income Statement Less formally Y income of financial year NAo net assets as shown in the balance sheet at beginning of financial year NAi net assets as shown in the balance sheet at end of financial year Do-i dividends paid and proposed for the financial year.

But you must discount only the dividends paid on existing shares. The new shares issued to finance the negative free cash flows in years 1 to 6 will claim a portion of the dividends paid out later. The value of the existing shares should be In other words, they are worth Remember, however, that this formula rests on a very strict assumption constant dividend growth in perpetuity. This may be an acceptable assumption for mature, low-risk firms, but for many firms, near-term growth is unsustainably high.

How much are they willing to pay today for this future and hence uncertain stream of dividends They are willing to pay exactly what they believe it is worth today, an amount that is called the present value, an important financial concept explained in Chapter 7. The present value of a share of stock reflects the following factors Statement of Cash Flows Last Updated on Mon, 28 Feb Cash Received Cash flow from financing CFF includes cash received inflow for the issuance of debt and equity.

As expected, CFF is reduced by dividends paid outflow. CFO by itself is a good but imperfect performance measure. Consider just one of the problems with CFO caused by the unnatural re-classification illustrated above. Notice that interest paid on debt interest expense is separated from dividends paid interest paid reduces CFO but dividends paid reduce CFF. Both repay suppliers of capital, but the cash flow statement separates them. As such, because dividends are not reflected in CFO, a company can boost CFO simply by issuing new stock in order to retire old debt.

If all other things are equal, this equity-for-debt swap would boost CFO. Questions And Problems Last Updated on Wed, 05 Oct Futures Price 8 comments Suppose that you enter into a 6-month forward contract on a non-dividend-paying stock when the stock price is 30 and the risk-free interest rate with continuous compounding is 12 per annum. What is the forward price 3. A stock index currently stands at The risk-free interest rate is 8 per annum with continuous compounding and the dividend yield on the index is 4 per annum.

What should the futures price for a 4-month contract be 3. A 1-year-long forward contract on a non-dividend-paying stock is entered into when the stock price is 40 and the risk-free rate of interest is 10 per annum with continuous compounding. The risk-free rate of interest is 7 per annum with continuous compounding and the dividend yield on a stock index is 3. The current value of an index is What is the 6-month futures price 3. What is the price of the security if the stated annual interest rate is 12 percent, compounded quarterly 4.

What is the price of World Transportation stock if the stated annual interest rate is 15 percent, compounded quarterly The Dividend Growth Model and the Npvgo Model Advanced Last Updated on Wed, 05 Oct Capital Structure This chapter has revealed that the price of a share of stock is the sum of its price as a cash cow plus the per-share value of its growth opportunities. The Sarro Shipping example illustrated this formula using only one growth opportunity.

We also used the growing-perpetuity formula to price a stock with a steady growth in dividends. When the formula is applied to stocks, it is typically called the dividend-growth model. A steady growth in dividends results from a continual investment in growth opportunities, not just investment in a single opportunity.

Therefore, it is worthwhile to compare the dividend-growth model with the NPVGO model when growth occurs through continual investing. Securities Act of Exchange Traded Portfolios Last Updated on Thu, 08 Aug Exchange Traded The cash from corporate dividends paid in to a grantor trust are immediately paid out to unit investors.

That is different from the Act securities where dividends are held until the end of each quarter. They are a good example of an exchange traded grantor trust. HOLDRs are typically invested in a relatively limited number of stocks and are structured in a manner where investors own the underlying stocks in each unit. Owning the underlying stocks allows investors to vote and receive dividends when they are paid by each company. The disadvantage of direct ownership is that investors are inundated with quarterly and annual reports as well as proxy statements from every company in the HOLDRs.

Unlike other exchange traded securities, ETN investors will not receive any periodic payments. For example, many stocks pay cash dividends, many bonds pay cash coupons, and many real estate investments pay rent. Say an investment costs 92, pays a dividend of 5 at the end of the period , and then is worth What would its rate of return be Percent Price Change Dividend Yield The capital gain is the difference between the purchase price and the final price, not counting interim payments.

Here, the capital gain is the difference between and 92, that is, the 18 change in the price of the investment. The dividend or coupon divided by the original price is called the dividend yield or coupon yield when stated in percentage terms. Of course, if the dividend coupon yield is high, you might earn a positive rate of return but experience a negative capital gain. The UIT manager cannot reinvest cash from dividends paid by the underlying companies in more shares of stock within the security.

That cash must go in a non-interest-bearing escrow account where it will sit until paid out to shareholders on a quarterly basis. Vanguard has patented this structure. That means any other open-end mutual fund company can license the concept from Vanguard as of this writing no other company has. Vanguard ETFs reinvest dividends paid by the underlying securities, which allows the funds to track their indexes more closely. The ratio of total assets to sales is constant at 1. What profit margin must the firm achieve 7 percent and a dividend payout ratio of 35 percent.

The current profit margin is Constraints on Growth. High Flyer, Inc. Is this growth rate possible To answer, determine what the dividend payout ratio must be. If all earnings are retained, future earnings are increased. However, stock prices may decrease as a result of adverse reaction to the absence of dividends. Maximizing wealth takes into account earnings, the timing and risk of these earnings, and the dividend policy of the firm.

Multiplying both sides of this equation by ke - g P0 reveals that ke - g equals D1 P0, or in other words, the expected dividend yield. The current T. Bill rate is 3 It was 5 one year ago. The stock is currently selling for 50, down 4 over the last year, and has paid a dividend of 2 during the last year and expects to pay a dividend of 2. The NYSE composite has gone down 8 over the last year, with a dividend yield of 3. HeavyTech Inc. Corporate Financial Decisions Firm Value and Equity Value Last Updated on Sat, 05 Dec Finance Analysis 1 comment This neat formulation of value is put to the test by the interactions among the investment, financing, and dividend decisions, and the conflicts of interest that arise between stockholders and lenders to the firm, on the one hand, and stockholders and managers, on the other.

We introduce the basic models available to value a firm and its equity in chapter 12, and relate them back to management decisions on investment, financial and dividend policy. In the process, we examine the determinants of value and how firms can increase their value.

What are the essential features of the taxation of corporate and personal income Last Updated on Tue, 05 Jan Interest Rate 7 comments The year-end balance sheet of Brandex Inc. What were dividends paid by the firm in Administrative expenses Interest expense Federal and state taxesa Accounts payable Accounts receivable Net fixed assetsb Long-term debt Notes payable Dividends paid Preferred Stock Features Last Updated on Sun, 14 Oct Corporate Finance Stated Value Preferred shares have a stated liquidating value, usually per share.

The cash dividend is described in terms of dollars per share. For example, General Motors 5 preferred easily translates into a dividend yield of 5 percent of stated value. Dividends payable on preferred stock are either cumulative or noncumulative most are cumulative. If preferred dividends are cumulative and are not paid in a particular year, they will be carried forward as an arrearage. Usually, both the accumulated past preferred dividends and the current preferred dividends must be paid before the common shareholders can receive anything.

Unpaid preferred dividends are not debts of the firm. Directors elected by the common shareholders can defer preferred dividends indefinitely. However, in such cases, common shareholders must also forgo dividends. In addition, holders of preferred shares are often granted voting and other rights if preferred dividends have not been paid for some time.

Large companies usually arrange for their stocks to be traded on a stock exchange. The stock listings report the stock's dividend yield, price, and trading volume. How can one calculate the present value of a stock given forecasts of future dividends and future stock price Stockholders generally expect to receive 1 cash dividends and 2 capital gains or losses.

The rate of return that they expect over the next year is defined as the expected dividend per share DIV1 plus the expected increase in price P1 P0 , all divided by the price at the start of the year P0. Unlike the fixed interest payments that the firm promises to bondholders, the dividends that are paid to stockholders depend on the fortunes of the firm. That's why a company's common stock is riskier than its debt.

Nonconstant Dividends Corn, Inc. The company has just paid a dividend of 6 per share and has announced that it will increase the dividend by 2 per share for each of the next four years, and then never pay another dividend. If you require an 11 percent return on the company's stock, how much will you pay for a share today Valuing Preferred Stock Bruin Bank just issued some new preferred stock.

The issue will pay an 8 annual dividend in perpetuity, beginning six years from now. If the market requires a 6 percent return on this investment, how much does a share of preferred stock cost today Dividends versus Capital Gains Last Updated on Sun, 14 Oct Capital Structure The discounted present value of all future dividends Div1 is the dividend paid at year's end and P1 is the price at year's end. P0 is the PV of the common-stock investment. The term in the denominator, r, is the discount rate of the stock.

It will be equal to the interest rate in the case where the stock is riskless. It is likely to be greater than the interest rate in the case where the stock is risky. Thus the value of a firm's common stock to the investor is equal to the present value of all of the expected future dividends. This is a very useful result. A common objection to applying present value analysis to stocks is that investors are too shortsighted to care about the long-run stream of dividends.

These critics argue that an investor will generally not look past his or her time horizon. Thus, prices in a market dominated by short-term investors will reflect only near-term dividends. Valuing Stocks That Have a Nonconstant Growth Rate Last Updated on Wed, 05 Oct Capital Structure 18 comments In the figure, the dividends of the supernormal growth firm are expected to grow at a 30 percent rate for three years, after which the growth rate is expected to fall to 8 percent, the assumed average for the economy.

The value of this firm, like any other, is the present value of its expected future dividends as determined by Equation When Dt is growing at a constant rate, we simplified Equation to P0 D1 rs g. In the supernormal case, however, the expected growth rate is not a constant it declines at the end of the period of supernormal growth.

A negative growth rate indicates a declining company. A mining company whose profits are falling because of a declining ore body is an example. Someone buying such a company would expect its earnings, and consequently its dividends and stock price , to decline each year, and this would lead to capital losses rather than capital gains.

Expected growth rates vary somewhat among companies, but dividend growth for most mature firms is generally expected to continue in the future at about the same rate as nominal gross domestic product real GDP plus inflation. On this basis, one might expect the dividends of an average, or normal, company to grow at a rate of 5 to 8 percent a year.

Stockholders and Bondholders Last Updated on Mon, 26 Aug Finance Analysis 4 comments 2 Restrict dividend policy In general, increases in dividends increase stock prices while decreasing bond prices, because they reduce the cash available to the firm to meet debt payments. Many bond agreements restrict dividend policy, by tying dividend payments to earnings. Systematic Withdrawal Last Updated on Sun, 22 Jun Life Insurance The systematic withdrawal method is a creative concept that could improve your standard of living now, while serving your heirs later.

This concept states that you do not strictly look at what income or dividend yield an investment could provide. What you look at is the overall total return of that investment over prolonged time periods. This total return takes into account the income as well as the underlying growth of the investment.

Regardless of market performance, you could generally take an estimated annual withdrawal of 6 to 7 percent. Preferred dividends are not tax deductible. Therefore, the company bears their full cost, and no tax adjustment is used when calculating the cost of preferred stock.

Note too that while some preferreds are issued without a stated maturity date, today most have a sinking fund that effectively limits their life. Finally, although it is not mandatory that preferred dividends be paid, firms generally have every intention of doing so, because otherwise 1 they cannot pay dividends on their common stock , 2 they will find it difficult to raise additional funds in the capital markets, and 3 in some cases preferred stockholders can take control of the firm.

By contrast, while there were declines in other stock indexes, like the Standard and Poor 's and the Russell index, an index of stocks with smaller market capitalizations, they were far less dramatic. The Dow-Jones Industrial Average increased by 8 over this same period. Mutual funds that had concentrated their positions in technology stocks suffered devastating losses.

Many lost more than 75 of their value, particularly those focused on the Internet sector. This is largely the opposite of what had taken place over the previous five years. We could extend the analysis on out, and in each future year the expected capital gains yield would always equal g, the expected dividend growth rate. Continuing, the dividend yield in could be estimated as follows Dividend yield The dividend yield for could also be calculated, and again it would be 5.

Thus, for a constant growth stock , the following conditions must hold 3. The expected dividend yield is a constant. Valuation of Different Types of Stocks Last Updated on Wed, 05 Oct Capital Structure The above discussion shows that the value of the firm is the present value of its future dividends.

How do we apply this idea in practice Equation 5. The general model can be simplified if the firm's dividends are expected to follow some basic patterns 1 zero growth, 2 constant growth, and 3 differential growth. These cases are illustrated in Figure 5. Dividend Growth Model Based on the dividend growth model, what are the two components of the total return on a share of stock Which do you think is typically larger 7.

According to the dividend preference theory, a company that pays dividends is often perceived as having less risk and a lower cost of equity r. We can use the constant growth dividend discount model ro see that this lower cost of equity may lead to a higher price-to-earnings ratio for the firm.

This causes a smaller spread between the required rate of return and the constant growth rate , which lowers the denominator in the constant growth dividend discount model formula the lower the denominator, the higher the P E ratio. Spreadsheet Problem Last Updated on Wed, 05 Oct Capital Structure 2 comments 3 The current price of the firm's 10 percent, par value, quarterly dividend, perpetual preferred stock is Cox would incur flotation costs of 2.

How could you use this information to estimate the future dividend growth rate , and what growth rate would you get Is this consistent with the 5 percent growth rate given earlier Financial Planning Model The Ingredients Last Updated on Wed, 05 Oct Hill Companies Financial Requirements The plan will include a section on the necessary financing arrangements.

This part of the plan should discuss dividend policy and debt policy. Sometimes firms will expect to raise cash by selling new shares of stock or by borrowing. In this case, the plan will have to consider what kinds of securities have to be sold and what methods of issuance are most appropriate.

These are subjects we consider in Part 6 of our book, where we discuss long-term financing, capital structure, and dividend policy. The continuous dividend yield on the share is denoted q, so that the share price S is replaced by S exp qT in the valuation formulation. The notation N d is used to denote the cumulative standard normal probability of a value less than d. Descriptive names have been chosen for the variables, e.

The variable ert is the discount factor for converting payoffs at maturity to present values in algebraic terms, exp rT. The variable eqt is the dividend yield effect on the current share price, algebraically exp qT. Forecasting Line Items Last Updated on Wed, 05 Oct Financial Modeling There is another set of assumptions that may be called policy assumptions that you would need to incorporate in your model.

For example, management may have its own target debt to equity ratio, dividend growth rate , and so on. Needless to say, all these assumptions should be documented in your list of assumptions. In equilibrium this expected return is also equal to the required return, rs.

This method of estimating the cost of equity is called the discounted cash flow, or DCF, method. Henceforth, we will assume that equilibrium exists, hence rs rs , so we can use the terms rs and rs interchangeably. The dividends are anticipated to maintain a 5. If the stock currently sells for Stock Values.

For the company in the previous problem, what is the dividend yield What is the expected capital gains yield 5. Stock Valuation. Pearl, Inc. If the company has a dividend yield of 3. Suppose you know that a company's stock currently sells for 75 per share and the required return on the stock is 11 percent. You also know that the total return on the stock is evenly divided between capital gains yield and a dividend yield.

If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share 7. Take a few moments to discover some things to consider when finding the highest dividend stocks for your investment portfolio. Why Not All Stocks Pay Dividends With research suggesting that dividend stocks outperform non-dividend stocks, why don't all companies pay cash dividends on their shares? In this article, you'll understand some of the reasons a company's Board of Directors may decide to hold off on dividends and instead reinvest in the business, pay down debt, or acquire another firm.

Find out the reason not all stocks pay dividends. If a stock doesn't pay dividends, how can it be worth anything? This is a question often asked by new investors. T To help you really get down into the details and understand non-dividend paying stocks, there is a story that will make this topic easy to grasp. It starts with a fictional company, American Apple Orchards, Inc.

You'll see how, despite paying no dividends , the company could still make its owners millionaires. Cash Dividends vs. Share Repurchases Which is better for you as an owner of a business: cash dividends or share repurchases? This is an extremely important question because one method is more tax efficient but the other requires less trust in management. To find out the important things you should ponder when deciding on a dividend paying stock, take a moment to briefly consider these factors.

How the Dividend Tax Works and Dividend Tax Rates The dividend tax sometimes confuses new investors because there are "qualified" dividends and "non-qualified" dividends. This overview explains how the dividend tax works and the individual dividend tax rates that may apply to the money you earn from your stocks or other cash-generating assets. Keep more cash in your pocket by taking the time to read this article.

The Dividend Trap and How to Avoid It Sometimes you might find a stock that appears to be offering huge cash dividends and paying yields that are several times the interest rate available at your local bank. Take a moment, calm down, and proceed with extreme caution. You may have just spotted a dividend trap. Find out how to avoid dividend traps. Jeremy Siegel has proven in his research that 99 percent of the gain investors experience after inflation comes entirely from reinvested dividends.

In this special feature, you'll see how that's possible, discover statistics on just how rich investors of the past have become by owning dividend stocks and learn of Siegel's "principle of investor returns," which he believes is responsible for a stock outperforming the market. Find out why boring dividends could be your new best friend. Use Dividends to Recover from Big Losses If you have suffered a devastating blow to the value of your investments, k , or stock portfolio, you may be able to use the combined power of dividends, dividend reinvestment, and dollar cost averaging to rebuild your assets over the next five to ten years.

This article was designed to help you understand the process and point you in the right direction to take back control of your tattered finances. Learn how to rebuild your portfolio and recover from losses with the help of dividends. Dividend Stocks Tend to Fall Less During Market Crashes Did you know that a portfolio full of dividend stocks is likely to fall less during a market crash than non-dividend paying stocks?

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