Passive investors, like Warren Buffet who do not trade stocks actively thrive on the dividend income of the companies that they invest into aka dividend stock. Dividend stock is a publicly traded company that regularly shares profits with shareholders through dividends. These companies tend to be both consistently profitable and committed to paying dividends for the foreseeable future.

In order to invest in dividend stock, you must first open a brokerage account. When dividends are paid, it will be credited directly into your bank account.

To calculate dividend, we take the annual per share dividend and divide by the price of the stock. This percentage (or yield) can be used to compare across different companies, mutual funds or ETFs and help you determine where to get the most for your money.

Companies can choose to pay dividends for a number of reasons, but typically it’s a way of sharing the firm’s profits with its owners, or shareholders. Companies may also look to pay dividends if they don’t have enough business opportunities to reinvest the cash. 

Dividends are usually paid quarterly, but other schedules are also possible. Special dividends are one-time payments that should not be counted on to reoccur.

Investors need to be aware of some key dates pertaining to dividends:

  • Announcement date: This is the day the company announces its dividend plans.
  • Record date: Investors who are recorded as shareholders as of this day will receive the dividend payment.
  • Ex-dividend date: This is the day when shareholders who purchase the stock will no longer receive the next dividend payment.
  • Payment date: This is the day investors will receive the dividend payment, credited into their bank account.

Dividends can account for a meaningful portion of investors’ total return, which includes both income and price appreciation. Since 1960, reinvested dividends accounted for 84% of the total return of the S&P 500 index, according to a recent study by Hartford Funds.

In the US, there is a group of companies which are called ‘Dividend Aristocrat’ as they have increased their dividend payout for a minimum of 25 years consecutively. As of Aug 2022, there are 65 of such companies and here are the top 20:


IBM (IBM): 5.0%

Amcor (AMCR): 3.8%

Walgreens Boots Alliance (WBA): 4.9%

T. Rowe Price Group (TROW): 3.8%

V.F. Corp. (VFC): 4.4%

Chevron (CVX): 3.7%

Leggett & Platt (LEG): 4.3%

Stanley Black & Decker (SWK): 3.5%

Franklin Resources (BEN): 4.1%

Kimberly-Clark (KMB): 3.4%

Realty Income (O): 4.0%

Clorox (CLX): 3.3%

AbbVie (ABBV): 4.0%

Consolidated Edison (ED): 3.2%

3M (MMM): 4.0%

Cardinal Health (CAH): 3.2%

Federal Realty Investment Trust (FRT): 4.0%

Essex Property Trust (ESS): 3.0%

Exxon Mobil (XOM): 3.9 %

Medtronic (MDT): 2.9%

To become a dividend investor, your options are to: pick and choose individual stocks yourself or buy a fund of dividend stocks.

The advantage of investing in a fund is that you can have a complete portfolio of dividend stocks from the beginning. You will enjoy the diversification since you own a portfolio of stocks with every dollar you invest. This diversification means that no single stock will hurt your portfolio too badly, reducing your risk and you won’t have to track and analyze every position, as you would with individual stocks, making it much easier to manage for new investors. To invest in Dividend Aristocrat funds, you may look at S&P 500 Dividend Aristocrats ETF (NOBL). Another option is the SPDR S&P Dividend ETF (SDY). Both funds pay dividends quarterly.

If you prefer to invest in individual dividend stocks, please take note of the following 

  • Jurisdictional taxes: In the US, any dividends you receive are taxable unless they’re inside a tax-advantaged account such as an IRA or 401(k). And that’s true even if you reinvest your payouts into more shares of the stock or fund. Qualified dividends are taxed at the more favorable capital gains rates, as compared to the ordinary income tax rates.
  • Payout ratio: The payout ratio is the percentage of the company’s profits that are paid out as dividends. The higher the ratio, the more precarious the dividend. A low payout ratio would allow a company to increase its payout even faster than its earnings growth.
  • Eroding competitive position: Dividend-paying companies tend to be slow-growth, often with few places to invest their excess cash flow. But for others, the core business may actually be shrinking or the company may not be reinvesting in its business, meaning that it’s slowly losing its competitive position in the industry. So while the dividend looks good today, it may end up being cut tomorrow as profitability falls.

To reach our editorial team on your feedback, story ideas and pitches, contact us here.


14 + 12 =

Get smart money tips in your inbox
We respect your privacy.