How to Invest in High Dividend Stocks [2021 Guide]

Guestpost by Andy Schmidt (Sure Dividend)

Aaah Dividends,…one of my favorite ways of making passive income. It is a bit tricky at first to grasp how to get started and it took me some time as well to find out about the ins and outs. But once you found your way (and if it fits your investing objectives), you contribute consistently to your investment portfolio and enjoy the long and easy ride.

long road red car convertible
It’s gonna be a long road! Enjoy!

For today’s guest post, Andy Schmidt from Sure Dividend will help us understand what lies behind high-yield dividend stocks and what to consider before investing. This will make that long and easy ride, faster 😉.

How to Yield High Dividend Stocks

Investing in stocks has been a remarkably vital mode of acquiring passive income for decades. With the rise of cryptocurrencies, many people have confused investing and trading, although this has resulted positively in making the two worlds more popular and more interlinked.

The main question shareholders and investors ask before deciding which company’s stocks they want to approach is ‘how much return can I expect?’. Today we’ll talk about how to yield high dividend stocks, and the importance of such ventures, so without any further ado, let’s get straight to it.

Higher dividends are more present in certain fields of industry

Essentially, the easiest way to recognize firms and companies that pay consistently high dividends is through market research. Mature companies,  in other words, well-established brands are by default paying the highest, most consistent dividends.

Coca Cola #dividendstock
Coca-Cola, a popular choice among dividend investors!

If we take a quick glance at products and companies that were ground-breakers of their time, such as Apple, or even Google and Coca Cola, their stocks were initially fairly low at the time of the founding of these respective companies, they eventually skyrocketed and became some of the biggest names to the point where they became virtually synonymous with the industries they came to dominate.

On the flip side, companies that are founded in industries with particularly high demand have a higher chance of yielding high dividend stocks from the get-go.

Actionable solutions, unique opportunities, and edge over the competition

The recipe for success of brands and companies is also the reason why their stocks and dividends are typically much stronger than those of their competition. A problem occurs when companies have what it takes for their brand and stocks to be massive in terms of creativity and uniqueness, but they don’t have the funds to transform their visions into reality.

Certain classes of shareholders, most notably class A and class B (with superior voting rights) have the ability to influence the company’s growth and trajectory. On the other side are companies who have unique solutions and ideas planned, but who lack the funds to set their projects off the ground.

woman pointing at board #business #solutions
Photo by Christina @ on Unsplash

In order to yield high dividend stocks and become well-established leaders in their respective markets, brand owners and CEOs have an interest in attracting more investors, so as to not fall behind in the race for technology.

One of the most difficult, but at the same time, most sure-fire ways of yielding high dividend stocks in any industry is by providing means to satisfy any particular need in a more efficient way when compared to typical, current solutions.

For example, the stocks and dividends of most sugar-producing companies were fairly huge until Stevia and similar sugar alternatives for people with diabetes came to the scene. By offering alternatives that can satisfy a recognized need by the mass population and by solving some of the challenges that the current solutions present, companies can be certain that their stocks will skyrocket.

Read more: How To Identify Recession Proof Dividend Stocks Very Simply with Kanwal

High Dividends are inhibitors to the company’s growth

Before we proceed with the guide on how to yield high dividend stocks, we should at least mention one of the most prominent dangers of such a venture. Namely, high dividends are hindering the company in the sense that firms are paying back shareholders the money that could be invested in better technologies, employing more experienced professionals, and similar growth-oriented projects.

Furthermore, companies that pay high dividends are, more often than not, in decline, and unable to create adequate defensive mechanisms to prevent further plummets. This is ideal for companies planned for acquisition and merging, but this can be disastrous for firms and small brands who have simply made a few beginner mistakes. High dividends are, generally speaking, not faithfully representing the brand’s size and growth.

Dividend Yield

There are many ways to identify stocks with high dividend payouts, but one of the most reliable ways is Dividend Yield Measurement. Essentially, this particular approach is based on the financial ratio of dividends expressed in percentages, which show the annual dividend payout per share, after which the result is divided by price (monetarily expressed) per share.

Dividend stocks #investing #money plant
Photo by Visual Stories || Micheile on Unsplash

A schoolbook example that would explain such a complex formula in a simplistic manner involves a $100 stock while the company’s yearly dividend is $5. The yield, in this case, is 5%, which is the result of the annual dividend divided by the stock’s trading value.

However, the dividend yield is not a fool-proof method of recognizing high dividend stocks in all cases. For instance, the market of real-estate investment trusts typically generates the highest dividend yields while the market of technology, despite the fact that it’s blooming rapidly, is known for companies that yield no dividends whatsoever.

Dividend Yield and Plummeting Stocks

Dividend yields are basically relative to stock prices – dividends that appear remarkably high are often telltale signs that the stocks of a particular company are plummeting, and that the brand is not doing particularly great.

The information investors can get from dividend yields is not always a reliable indicator of the company’s growth and well-being. At the same time, there are different kinds of dividends, most notably ‘ordinary’ and ‘qualified’ dividends, which are burdened by different tax rates.

By definition, the dividend yield is measured by dividing the annual dividends/share and current share price. The value of stocks also plays a factor, as it influences both values.

Read more: How to Reach Financial Independence Through Dividend Stock Investing with European DG

Stock value, dividends, and taxes

Fresh investors and shareholders are often enthralled by the monetary value of stocks, and some tend to ignore the element of taxes that burden them.

It’s not all rainbows and unicorns!

High stocks and high dividends are often followed by high taxes. Given that the main motivation for obtaining stocks in the first place is the acquisition of passive income, investors who are shareholders in multiple companies with dividends burdened by high taxes are essentially generating very little money.

The actual value of stocks should be perceived through the value of actionable dividends and taxes. In the case of qualified dividends, taxes are regulated at capital gain rates, which are significantly lower.

We hope that this guide was useful to you and that you have learned something new today on how to yield high dividend stocks in 2021. Make sure you are staying safe in these times we are all going through and have a good one, guys!

[Jonathan: Taxes on dividends vary significantly from country to country, make sure to check your local rules and exemptions]

About the Author

Andy has been in the online content world for over 10 years as a freelance copywriter, technical writer, and translator, covering different topics – finance, energy, and also sustainability. What is he doing when not writing? Andy learned how to enjoy long walks, play chess, and finally – how to sleep at night.

Andy Schmidt Sure Dividend #dividend
Andy Schmidt

I would like to thank Andy once again for helping us understand dividend stocks better. I particularly liked the point on the high dividend stocks can be a reflection of a company in decline: The share price decreases while the company maintains the same dividend payout, this gives a high dividend yield, but it is not a high-quality stock.

If you want to know more I recommend taking a listen to the interview I had with Kanwal who breaks down the concept of dividend stocks in a very simple way. He also has a course (Simply Investing) so you can learn about dividends more in detail as well

If like Andy you wish to collaborate for guest posting or sponsored posts please do not hesitate to reach out by e-mail and of course, for everyone, do follow us on social media as well for more great content, check our FacebookInstagramTwitter, and join our e-mail list. I would love to connect with you!

Disclosure: This post may contain affiliate links. That means I may make a small commission (at no cost to you) if you make a purchase. This will help to support Joney Talks!

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