Invest in Dividend Stocks Australia – Investing in Dividends Beginners Guide 2021
Aiming to invest in dividend stocks in Australia? Dividend investing means investing in companies that pay out dividends. These are payments made to shareholders on a regular basis. Dividend investing is perfect for investors who want to lay down a fixed income, rather than invest solely to take profits from changes in share price.
Below we look at how dividends work. We look at the advantages of investing in an Exchange Traded Fund (ETF) that specialises in firms that offer dividends. And, most importantly, we review three brokers who welcome Australian business and allow you to invest in Australian dollars (AUD).
#1 Dividend Stocks Broker Australia – eToro
How to Invest in Dividend Stocks Australia – Step-by-Step Guide 2021
To invest for dividend stocks, follow this simple four-step strategy:
- Step 1: Open an eToro account: Go to eToro.com. Join 20 million other investors by pressing the ‘Join Now’ button. Fill out the box: username, email, password. Click the ‘Create Account’ button.
- Step 2: Verify your Identity: You will need to upload proof of identity and proof of address. For swift verification, use your passport for proof of identity. You will be emailed once verified.
- Step 3: Fund your account: Go into your eToro account. Press the ‘Deposit Funds’ button at the bottom-left of your screen. With eToro, you can choose from up to 15 different currencies to deposit funds. eToro accepts Australian Dollars (AUD) via bank transfer, credit card and PayPal.
- Step 4: Invest in dividend stocks: There are many options for investing for dividend stocks. You will need to review stocks and ETFs, in particular. Find stocks and ETFs by pressing the ‘Discover’ button on your left toolbar and choosing ‘stocks’ or ‘ETFs’ from the menu bar that comes up. Click on individual assets to review their stats, charts and investor commentaries. Then press the blue ‘Trade’ button to review your transaction options.
Where to Invest in Dividend Stocks Australia – Top Dividend Stock Brokers
To invest in dividend stocks, you can invest in companies that pay out dividends, or invest in ETFs (Exchange Traded Funds) which invest in whole selections of companies that pay out dividends. Investing in ETFs is safer than investing in individual stocks – because ETFs spread risk. But you can do both.
A key issue you will face in either case is finding a broker that will accept Australian dollars and accept you as a resident of Australia. Some brokers, especially in the US, are limited in the geographical scope they can operate in. The three brokers we have chosen to review – eToro, AvaTrade and Capital.com – all accept AUD and Australian clients.
1. eToro – Best Overall Platform to Invest in Dividend Stocks Australia
eToro serves over 20 million existing customers in 120+ countries. eToro is a good place for Australian investors to start investing in dividend stocks. There are over 700 stocks to choose from as well as 250 ETFs, including dividend-specific ETFs.
eToro has a great reputation for beginners: the eToro interface is a cinch to use, transactions are commission-free and everything is laid out to be easy rather than complicated.
Most importantly, eToro is set up for Australian investors: Australian dollars (AUD) are accepted via PayPal, credit card and bank transfer.
eToro Dividend ETFs
Of eToro’s 250 ETFs, here are two dividend ETFs for you to check out as examples of what is on offer:
Invest with eToro in the iShare Select Dividend ETF (DVY) to expose your portfolio to the Dow Jones Global Select Dividend Index, which tracks 100 global firms offering high dividends.
Also, consider the SPDR S&P US Dividend Aristocrats ETF (UDVD). This ETF is the third-biggest dividend ETF in the world, and currently offers the second-highest dividend yield (26.94%).
What makes UDVD a canny dividend choice is that it tracks firms that have paid an annual dividend every year for the last 20 years, with that dividend increasing every time. Past performance is no guarantee of future performance – companies are not legally obliged to pay out dividends at all – but this ETF gives you a headstart. To stay abreast of which companies are set to pay dividends, research online.
eToro offers two proprietary facilities for beginners: CopyTrader and CopyPortfolios.
CopyTrader allows you to review other traders’ performance – and then copy their trades automatically without a management fee. Some traders you can copy focus on short-term spectacular gains. But many focus on dividend investing. Have a look around, and remember you can stop copying a particular trader at any time.
CopyPortfolios allow you to pick a managed portfolio based around a particular theme and then invest in it without a management fee. CopyPortfolios usually require $1000 USD to get started.
For both CopyTrader and CopyPortfolio, you will be charged spread fees for all transactions made on your behalf.
eToro is regulated in Australia by the Australian Securities and Investments Commission (ASIC). In the UK, eToro is regulated by the FCA. Regulation is provided by the Cyprus Securities & Exchange Commission (CySEC) in Cyprus.
As with all brokers, eToro levies a spread fee on transactions. This means that there is a difference, at any time, between the price you can buy at and the price you can sell at. The difference is the spread. The spread allows all brokers to cover their costs.
As an investor, you will not be charged the spread fee as a fee in itself: it is rather a difference in buying and selling price for every transaction that you carry out.
Here you can see eToro’s spread fee for FTSE real estate investment trust Tritax Big Box (BBOX) – currently offering a potential dividend yield of over 3%. Tritax rents out big warehouses to online retailers like Tesco, Amazon and TK Maxx. As an investor, you would get to see some of that rental income as dividends.
The Buy price (B) is 225.60. The Sell Price (S) is 225.00. The difference between the two prices is the spread. The spread is expressed as a percentage of the Buy Price (B). So the spread for BBOX here is ((225.60-225.00)/225.6)*100=0.045%.
You do not need to do the maths to calculate the spread fee percentage for stocks and ETFs. You just need to be aware that the spread exists. As investors, we want our spreads to be as tight as possible. Then the stock does not have to move much for us to be in profit. With dividend shares, the spread is less important because we are investing for dividend returns rather than movements in share price. But it still matters. Dividend stocks and ETFs are no good if their value falls off dramatically, even if the dividends are good.
|Fee Type||Fee Amount|
|Inactivity Fee||$10 monthly fee applies after 1 year of inactivity|
- 250+ ETFs available, including dividend ETFs.
- 20 million investors served over 120+ countries.
- AUD accepted via credit card, bank transfer and PayPal.
- Regulated by ASIC, CySEC and FCA.
- CopyTrader & CopyPortfolios – copy more experienced traders for free.
- Simple user interface.
- No surprises with fees, with great help pages spelling fees out.
- No extra platform support (unlike AvaTrade).
- No specific dividend indices to trade direct.
67% of retail investor accounts lose money when trading CFDs with this provider.
2. AvaTrade — Best MT4 & MT5 CFD Broker to Invest in Dividend Stocks Australia
AvaTrade is a CFD (Contract-For-Difference) broker with particularly strong offering in US stocks and ETFs. The broker is regulated in no less than 7 global jurisdictions and has a unique reputation for its selection of trading platforms including MT4/MT5, DupliTrade and ZuluTrade.
AvaTrade accepts Australian investors via a dedicated Australian website. AUD is accepted as a deposit currency.
Note that, with this broker, your account will be a margin account and leverage trades are set at a certain level. This gives you powerful CFD options. But beginner investors might be better off trying eToro first, where CFD trades are optional and everything is set up to suit the first-time investor.
With CFD trading, investors do not own the stock at any point. Rather they enter into a contract to be exposed to changes in its price. This can lead to confusion with dividend payments: do investors receive dividends with CFD positions? The answer is yes, as CFD experts contracts-for-difference.com spell out: ‘If you hold a long position in shares with CFDs, and held the day before the ex-dividend date, then you become entitled to a payment equivalent to the amount of the dividend.’
Alongside copy trader giants DupliTrade and Zulutrade, AvaTrade offers two of its own platforms AvaSocial and AvaOptions. AvaSocial is a mobile-only app designed for beginners. Social and copy trading is the focus. AvaOptions is a custom platform for trading financial options, which are not suitable for beginners.
AvaTrade is regulated globally by CySEC, The Central Bank of Ireland, the FSA, ASIC, the FSRA, the FSCA, the ISA and the FSC.
A minimum spread fee of 0.13% applies to all AvaTrade stock and ETF trades. An overnight fee also applies to ETF positions. Note that leverage applies automatically, and cannot be changed.
|Fee Type||Fee Amount|
|Inactivity Fee||$50 per quarter after 3 months inactivity|
|ETF Fee||A spread fee of 0.13%|
- Takes AUD.
- Good choice of dividend stocks.
- 60+ ETFs
- Multiple platforms to explore.
- Responsive phone Help service.
- Non-activity fees.
- CFD trading and margin account only.
71% of retail investor accounts lose money when trading CFDs with this provider.
3. Capital.com — Established CFD Broker to Invest in Dividend Stocks Australia
Like AvaTrade, Capital.com is a regulated CFD broker with a good reputation. A good selection of stocks are available to trade via CFDs, as well as 100+ ETFs.
Capital.com affirmed its commitment to Australian clients in 2021 by opening an office in Melbourne, Australia. AUD is accepted as a deposit currency.
This broker offers a truly international selection of stocks. You can browse through to pick out some dividend stocks. Note that, as with AvaTrade, all transactions are conducted as leveraged CFDs, which are not suitable for total beginners.
For example, a dividend ETF offered by Capital.com via CFD is the Vanguard Yield Index Fund ETF (VYM). This invests in companies that offer high dividend yields.
Capital.com offers access to 3,800 markets. Beginners should check out Capital.com’s Help app Investmate.
Capital.com is regulated by the Australian Securities and Investments Commission (ASIC), the UK’s Financial Conduct Authority (FCA), and the Cyprus Security and Exchange Commission (CySEC).
As with eToro and AvaTrade, spread fees apply on all transactions. Capital.com is known for offering tight spreads. Check out the low spread on UK oil firm and dividend stalwart BP (BP):
The spread percentage on BP offered by Capital.com is ((3.526-3.517)/3.526)* 100 = 0.26%.
Overnight fees apply for all CFD positions.
|Fee Type||Fee Amount|
- Good reputation for tight spreads.
- Takes AUD.
- 100+ ETFs to trade as CFDs.
- CFD trading and margin account only.
77% of retail investor accounts lose money when trading CFDs with this provider.
Invest in Dividend Stocks Australia – Broker Price Comparison
|Broker||Deposit Fee||Withdrawal Fee||Inactivity Fee|
|eToro||$0||$5||$10 monthly (after 12 months inactivity)|
|AvaTrade||$0||$0||$50 per quarter after 3 months inactivity|
How do Dividends Work?
Dividends are paid out to shareholders according to a schedule:
Declaration date: the company announces it will be paying a dividend shortly.
Ex-dividend date: this is the key date. You must own stock or hold a CFD buy position before this date to receive the dividend.
Payment date: the dividend is paid. This is often a couple of weeks after the ex-dividend date. If you invest with an online broker, the dividend will usually be paid straight into your funds. (Note that, in rare instances, companies pay dividends using stock rather than cash).
What is the one thing I MUST know about investing in dividend stocks?
You must own the stock (or have a CFD buy position on it) by the ex-dividend date. Find out the next ex-dividend date of a company by searching its financial profile or googling it.
What are good sectors for dividend stocks?
Search for stocks in oil and gas, healthcare and pharmaceuticals, financials, utilities, materials and real estate.
What is the best type of stock for dividends?
Real Estate Investment Trusts (REITs) are the top asset for dividends. REITs are stocks that invest in commercial property and earn income from rents. REITs are compelled by law to payout 90% of taxable income to investors, so dividends are high.
You can access REITs as individual stocks or invest in REIT ETFs, which invest in a basket of REITs at once. Investing in an ETF reduces risk through diversification. There are many REIT stocks and ETFs on eToro.
How often are dividends paid out?
Companies can pay dividends whenever they want. Most companies that do pay dividends payout on a three-monthly basis. Sometimes a company will make what is known as a special dividend payment which is a one-off dividend. This can happen when the company has a particularly good year or wants to reward shareholders for their loyalty.
What is the ‘dividend yield’?
The dividend yield shows you whether a stock is a good provider of dividends. The higher the dividend yield the better. Stocks with a dividend yield of 8% are considered to be exceptional dividend stocks. A 4% dividend yield is a good yield.
You do not need to calculate dividend yield yourself. You can find it on most company profiles. If not, google the company’s name + ‘dividend yield’.
The equation for dividend yield is:
Dividend yield = total annual dividends per share divided by the current share price.
Company x has paid out $10 in dividends per share over the last year. The annual dividend per share, therefore, equals $10.
The current share price is $200.
The dividend yield therefore equals 10 divided by 200 = 0.05 = 5%.
What companies currently offer a good dividend schedule?
Top US companies with a projected 2021 dividend yield of over 8% include:
- AT&T (T)
- Broadmark Realty Capital (BRMK)
- Dynex Capital (DX)
- AGNC Investment (AGNC)
- NexPoint Real Estate Finance (NREF)
- PennyMac Mortgage Investment Trust (PMT)
- BlackRock Capital Investment Corporation (BKCC)
- Ellington Financial (EFC)
- Annaly Capital Management (NLY)
- Two Harbors Investment (TWO)
As of July 2021, UK stocks Imperial Brands (IMB), Evraz (EVR), M&G (MNG), Persimmon (PSN) and British American Tobacco (BATS) are set for rewarded dividend schedules.
Is Investing in Dividend Stocks a Good Investment?
For a fixed income, investing in dividend stocks is an excellent investment.
Investing in Dividend Stocks Australia – What are the Risks?
The risks with dividend stocks are the same as for other stocks: a whole host of influences can send the share price down. With dividend stocks, we certainly do not want the share price to dip because, when we come to sell the stock, we will lose out. But the focus with dividend stocks is the fixed income they provide. Note that in tough times firms tend not to pay out dividends. Many did not during the Coronavirus crisis, for example.
A risk particular to dividend stocks is that, instead of paying for expansion, funds are used to pay for dividends. This means that some dividend stocks do not register great growth in their share price.
How to Invest in Dividend Stocks Australia with eToro
Here’s your four-step strategy to invest for dividends with eToro from Australia:
Step 1: Open an account with eToro
Go to eToro.com. Complete the simple form with a username, your email and a password. Once you get inside your account, you can set up 2FA (2-factor authentication). Tick the acknowledgement boxes to indicate that you have read the legal info. Press the blue ‘Create Account’ button.
67% of retail investor accounts lose money when trading CFDs with this provider.
Step 2: Verify your account
Verifying your account does not take long with eToro. You will need to provide scans of proof of identity and proof of address. Use your passport for quickest verification. Make sure it has not run out of date.
For Proof of Address, eToro accepts: a tax letter/bill, a letter from your council/municipality, internet/phone bill/council tax/water/gas/electricity bill, and of course your credit card/bank statement.
Generally, you will need to access a scanner and upload a scan of your paperwork. If your documents are digital-only, eToro will accept a screenshot.
You will receive an email from eToro when your account is verified. Then you are ready to deposit funds and get investing in dividends.
Step 3: Fund your account
Press the ‘Deposit Funds’ button at the bottom left of the eToro interface to get going. You will then see the box below. You can choose from 15 deposit currencies including AUD. Payment methods differ depending on where you live. eToro offers bank transfer/credit card and PayPal for AUD.
Note that when you come to withdraw funds, eToro will release them via the payment method you use now. Plan ahead.
Step 4: Invest in Dividend Stocks
To review all eToro stocks and ETFs, click the ‘Discover’ button on your left toolbar:
This will bring up this toolbar:
Click on either ‘stocks’ or ‘ETFs’ to browse. You can search for individual stocks and ETFs by using the top search bar.
Click on a stock’s logo or name to investigate it further. eToro provides plentiful stats and a good charting facility. Once a stock chart comes up, look to its top-right corner. You will see a double-arrow symbol:
Press this symbol to access full charting options:
To review your transaction options, press the blue ‘Trade’ button. You will always find this at the top right of the eToro user interface.
Pressing the ‘Trade’ button will bring up buy/sell and other options.
CFD brokers AvaTrade and Capital.com offer powerful CFD options for investing. But, for beginners, eToro is the best place to begin investing for dividends. Since its foundation in 2006, eToro has gone all out honing a service that is simple, friendly and reassuring to use. A great selection of dividend stocks and ETFs are available commission-free.
For Australian investors, eToro is an excellent choice because it accepts Australian dollars (AUD) via credit card, bank transfer and PayPal. eToro is also regulated in Australia by ASIC, which is reassuring.
Top tip # 1: REITs for dividends! Real Exchange Investment Trusts are the premier asset class for dividends, and eToro has plenty of them as stocks and ETFs.
Top tip # 2: Dividend yield is a key consideration because it shows you how generous a company is with dividends. But companies do not pay out dividends all the time. UK housebuilder Taylor Wimpey (TW), for example, stopped paying out dividends during the Covid pandemic, but analysts say TW is now back on track to pay a 2.6% dividend yield for the year ahead. There are no guarantees with dividends until a company has made a dividend declaration. So a good way forward is to keep our eyes peeled for companies with a history of paying dividends regularly and then search online for any dividend news. Better still, invest in a dividend ETF that does the work for you.