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How to Invest in Dividend Stocks

When it comes to investing in the stock market, people generally aim at earning through capital appreciation. They often forget that they can earn regular payments in the form of dividends too.

This type of investing is called dividend investing.

While companies are not under any obligation to pay dividend, many companies pay dividend regularly in order to reward their shareholders.

Their dividend paying track record is sometimes the sole reason people may invest in them.

Hence, adding dividend paying stocks to your portfolio is like having a secret weapon in your armoury. But how can you earn this regular income?

There are two ways to invest in dividend stocks:

There are many funds out there which invest in dividend companies. These mutual fund schemes are called dividend yield funds.

HDFC Dividend Yield Fund, Sundaram Dividend Yield Fund, UTI Dividend Yield Fund, among others are some of the dividend yield schemes.

Now, let us look at some points while investing individually in dividend stocks.

Selecting a dividend paying stock is easier said than done. But one probable way to select dividend stocks is by answering the following four questions:

Dividend yield is calculated to see how much percent of stock price is paid to shareholders. Dividend yield is arrived by dividing annual dividends per share with current market share price.

Dividend pay-out means the percentage of net income paid to the shareholders. Dividend pay-out is arrived by dividing total dividend paid with the net income of the come.

High dividend paying companies are typically mature businesses. They plough back less profits for growth. They often trade at discounted valuations vis-a-vis the valuations of the broader markets and are fast-growing companies within their sector.

The art of dividend investing is not easy, but good things never come easy.


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