How To Invest In Dividend Stocks – Investing in Dividend Stocks For Beginners 2021

Fact Checked by Gary McFarlane

Investing in the stock market is a phenomenal way to build wealth, rather than your money sitting in a bank losing value each year, you have the potential to see massive returns. However, there is a downside, you’re quite likely to end up with your money stuck in purgatory. What we mean by this is you could end up with a position you can’t close, either because it’s below the price you bought it or you’re still waiting on a certain movement playing out. While neither of these scenarios is the end of the world, they’re certainly not ideal. By investing in dividend stocks you can relive some of the liquidity issues you may otherwise face. This is because people investing in dividend stocks receive quarterly or yearly payments, called dividend payments. The amount of money you’ll receive is directly linked to the number of shares you own. 

If you’re interested in investing in dividend stocks, then you’re in the right place. Throughout this article, we’ll discuss the best dividend stockbrokers, some of the highest performing dividend stocks, and even provide you with a comprehensive guide explaining how to invest in dividend stocks.

#1 Broker to Invest in Dividend Stocks – eToro

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How to Invest in Dividend Stocks – Step by Step Guide 2021

Need a hand getting started? We’ve included this easy-to-follow guide on how you can start investing with the number 1 broker eToro. If you’d prefer a longer-form guide, you’ll be able to find that toward the end of the page. 

  • Step 1: Open an eToro account: Before you can invest in dividend stocks you’ll need to register with a trusted broker. If you have yet to decide on which broker is right for you, we recommend eToro. Just type “eToro.com” into your browser, press “Join Now” and fill in the necessary details. 
  • Step 2: Verify your Identity: Like any reputable broker, eToro is regulated. This means that before you can start trading, you’ll need to verify your identity. Doing so only takes a couple of minutes, all you’ll need is a photo ID (passport, driving license) and proof of address (utility bill, bank statement).
  • Step 3: Fund your Account: Once your account has been verified, you’re almost ready to invest! All that’s left is to fund your eToro account. To do this click on the button marked “Deposit Funds”, enter however much you plan on investing, and press “Deposit”. To ensure nobody has issues with paying, eToro lets you deposit using a credit/debit card, bank transfer, or e-wallet (PayPal, Skrill).
  • Step 4: Invest in Dividend Stocks: Now that your account has been funded, you’re ready to invest. All you have to do is type your stock of choice into the eToro search bar, press trade, type in the amount you want to invest, and press “Open Trade”.

Choose a Broker

An often overlooked prerequisite to making your first investment is choosing a broker that’s right for your needs. If you don’t do your research here you could end up with a broker that charges exorbitant fees or doesn’t have the stock you’d like to invest in. To ensure this doesn’t happen to you, we’ve compiled this list of the top 3 brokerages you can use to invest in dividend stocks.

eToro – Best All-Around Dividend Stock Broker

If you’ve spent any amount of time researching different stock brokers it’s more than likely that you would’ve heard the name eToro mentioned. This is because they’re one of the largest brokers in the world, currently catering to the needs of over 20 million users. Any platform doing numbers like this is clearly doing something right, so we’ll delve a bit deeper into how eToro has gained such a huge number of customers. 

Security & Privacy

One thing an investor never wants to worry about is the security of their funds, everyone knows that trading comes with some inherent risks and isn’t a guaranteed way of making money, but poor security could pose an even larger risk. To protect their customers against security threats, eToro follows a regulatory framework set out by the FCA and CySEC, this prevents eToro from doing anything illicit behind the scenes. Additionally, if you’re worried about the security of your data (passwords, emails, etc) then eToro has you covered. They’ve implemented SSL encryption for sensitive information, this means that your data is safe from any hackers attempting to intercept it on its way back to the eToro servers. Additionally, eToro users can use 2FA as an additional layer of protection, it will require you to enter a code sent to your mobile before you can complete any sensitive account actions. 

Features

With over 20 million customers to cater to, it makes sense that eToro comes equipped with a huge range of useful features. Those new to investing can benefit from CopyPortfilios, a way you can invest in a range of related companies at once, without having to open up heaps of individual positions. Another “copy” feature that eToro offers is CopyTrading, a method of generating a passive income by automatically mirroring the trades of more experienced users. If you’re an experienced investor, don’t be alarmed, you haven’t been left out. You can benefit from the huge range of markets and financial products that eToro offers, this can be huge for anyone with a diverse portfolio wanting to manage all of their assets on one platform. Additionally, eToro has plenty of advanced charting tools built in, this ensures that technical traders have all the tools they need, regardless of how complex their strategy is. 

eToro Fees

Fee Type Fee Amount
Commision Fee 0%
Deposit Fee $0
Withdrawal Fee $5
Inactivity Fee $10 (Monthly)

 

Pros

  • Regulated
  • 20-million users
  • CopyTrading
  • CopyPortfolios
  • SSL encryption
  • Huge range of tradable assets

Cons

  • MetaTrader support would take eToro to the next level for technical traders

67% of retail investor accounts lose money when trading CFDs with this provider.

TD Ameritrade – Invest in Dividend Stocks Automatically

TD Ameritrade has been around since the 1980s and throughout their years as a renowned investment platform, they’ve gained plenty of tricks of features. Although their platform could be considered too complex for those new to investing, it’s well worth getting used to the terminology and features on the platform. Overall, it’s an extremely powerful investment platform and great for investing in dividend stocks. 

Security & Privacy

It wouldn’t have been possible for TD Ameritrade to survive more than 30 years in the investment game, without some serious security. They are, of course, a regulated platform, providing investors additional peace of mind. Although it can definitely provide investors reassurance, most platforms today are regulated, so it doesn’t mean a huge amount on its own. As such, TD Ameritrade has implemented some extra safety features. The first being 128-bit SSL encryption for customer data, something that is massively important in the privacy-first modern world. On top of this, TD Ameritrade gives users a unique verification phrase when they first create an account, this phrase is linked to your account and can be used when speaking to employees to confirm they actually work for TD Ameritrade and aren’t attempting a phishing attack. 

Features

If you’re looking to take a passive approach to dividend investing then you’ll likely love some of the features offered by TD Ameritrade. Along with the industry-standard features investors have come to expect; a range of markets, variety of investment types, Ameritrade also has an excellent dividend-specific feature. That being, dividend reinvestment, once set up, you’ll be able to automatically reinvest any dividend payments you receive from a company. Resulting in a more efficient portfolio with less work required. Experienced TD Ameritrade customers can also benefit hugely from their “thinkorswim” trading platform, providing users with a fully customizable trading experience, and on-the-fly data from over 400 technical studies. Overall, we’d say these features make TD Ameritrade a strong contender for anyone looking to invest in dividend stocks. 

 

TD Ameritrade Fees

Fee Type Fee Amount 
Commision Fee 0% (on US stocks)
Deposit Fee $0
Withdrawal Fee $0
Inactivity Fee $0

 

Pros

  • Dividend reinvestment
  • Educational material
  • Range of markets
  • Regulated
  • Thinkorswim 

Cons

  • Could be more user friendly

67% of retail investor accounts lose money when trading CFDs with this provider.

Fidelity – Best Dividend Stock Broker for Experienced Investors 

Fidelity is one of the foremost investment brokers in the world, their ETFs are used by hundreds of brokerages, and as of 2020, they currently manage over $4.4 trillion worth of assets. They’ve been operating since 1969, making them the oldest platform on our list, but that certainly doesn’t mean their platform isn’t full of advanced, modern features. 

Security & Privacy

Security was just as important to investors in the 60s and 70s as it is today, and as such, Fidelity offers users ironclad security & privacy features. One interesting area is Fidelity’s fairly unique implementation of biometric security. While many platforms offer users the ability to use their phone’s fingerprint or face scanner, Fidelity has implemented voice biometrics, a way for users to verify their identity by speaking into a microphone-enabled device. Another unique offering from Fidelity is the ability to use their proprietary messaging system to send encrypted messages to Fidelity employees. This ensures two things, you’re not getting phished and your communications aren’t being intercepted. And to round off the security section, Fidelity is a regulated platform and gives users the option of implementing 2FA as an extra layer of security. 

Features

With age, comes experience, and it’s evident from the plethora of investment features Fidelity offers they have this in spades. Fidelity has listened to the needs of its customers and provided them with an excellent investment platform. Fidelity’s users can benefit from extensive market research, which can help you make an informed decision on which investments are best for you, decreasing risk and increasing profits. If you’re considered as a “high value” client, then you’ll have free access to a Fidelity financial advisor, which can once again, help you make better-informed investments. On top of all of this, Fidelity also offers its customers what they referrer to as “Fidelity Go”, a robo-investing platform, created to automatically invest for you. You’ll have to answer a few questions which will tailor Fidelity Go to your investment strategy, resulting in an incredibly simple way of investing that is still aligned with your goals. 

 

Fidelity Fees

Fee Type Fee Amount 
Commision Fee 0%
Deposit Fee $0
Withdrawal Fee $0
Inactivity Fee $0

 

Pros

  • Top-quality market research
  • Financial Advisor
  • Fidelity GO
  • Regulated
  • 50+ year track record

Cons

  • Interface could be confusing for a beginner
  • Crypto Investments would be nice to have 

67% of retail investor accounts lose money when trading CFDs with this provider.

Invest in Dividend Stocks – Broker Price Comparison

We understand how difficult it can be to choose the right broker for your individual needs. So, to help make the process a bit easier for our readers we’ve included this table comparing the fees each broker charges.

Broker Commission Deposit Fee Withdrawal Fee Inactivity Fee
eToro 0% $0 $0 $10 monthly (after 12 months inactivity)
TD Ameritrade 0% (US stocks) $0 $0 $0
Fidelity 0% $0 $0 $0

 

What are Dividend Stocks? 

To fully understand what a dividend stock is, we first need to discuss what a stock is. When you invest in a company you’ll be purchasing a stock (otherwise called a share), this stock grants you fractional ownership of a company, technically making you a part-owner. A dividend stock works in exactly the same way, with the only difference being with enough shares, you’ll begin to receive what’s referred to as a dividend payment. This is a company’s way of paying forward a share of its profits to investors, rewarding them for holding and incentivizing them to continue doing so. Typically, you’ll receive a dividend payment either quarterly or yearly, with the amount of money you receive tied directly to the number of shares you own.

ETFs (Exchange Traded Funds)

Want a safer way of investing while still receiving dividends? It doesn’t get much better than investing in an ETF. An exchange-traded fund or ETF for short is essentially a group of assets bundled together by a fund manager to allow for easy investment. Although similar to investing in stocks, there are several important differences. Your risk exposure is far lower than when investing in a singular stock, this is because if one of the companies within the ETF should fail, your portfolio will be shielded by the others. It’s important to note, however, when investing in an ETF, although you can receive dividend payments, you don’t own any of the underlying assets contained within the fund. 

Best Performing Dividend Stocks 

Now that we’ve discussed the 2 most popular ways of investing in dividend stocks, it seems right we discuss some of the best dividend stocks you can invest in today. Before you invest, you should always take into consideration a company’s payout ratio as this could affect a stock’s long-term performance.

Altria Group (MO)

The tobacco industry is huge, as of 2019 global sales for the tobacco industry were over $800 billion and that number is predicted to increase to over $1 trillion by 2028. If numbers like that weren’t enough to pique your interest, you might also be interested to hear that the tobacco industry is generally regarded as being fairly recession-proof, in fact, a recession can even be beneficial for the tobacco industry. The Altria Group is one of the biggest businesses in the tobacco industry and owns America’s favorite tobacco brand, Marlboro. As of 2021, the Altria Group offers its investors a dividend yield of 7.91%, 1.64% above the average for the tobacco industry. If you’re looking for a high-paying, low-risk dividend stock and don’t mind dipping your toes into the tobacco industry, you’ll be hard-pressed to find a company offering a yield as high as that of the Altria Group. 

Johnson & Johnson (JNJ)

Another solid choice for anyone looking to invest in a high-yield dividend stock is health care titan Johnson & Johnson. They’ve long since been regarded as a fairly safe blue-chip stock and with a diverse range of offerings, they’re not affected too badly by market swings. They operate in 3 main markets, medical devices, pharmaceuticals, and consumer products. Some of the brands owned by Johnsons and Johnsons include Listerine, Tylenol, and Nicorette. As of 2021, they’re offering a dividend yield of 2.63%, almost double the industry average. With its huge range of brands and reasonable payout ratio (total dividend payments against company earnings), Johnson & Johnson looks set to continue growing steadily. 

Invesco KBW High Dividend Yield Financial ETF (KBWD)

And to round off our list of some of the best dividend stocks you can buy today, we have the Invesco KBW High Dividend Yield Financial ETF (KBWD). As you probably guessed from the name, the KBWD is an ETF, with the top 3 companies contained within it being Orchid Island Capital Inc (ORC), FS KKR Capital Corp (FSK), and TCG BDC Inc (CGBD). Despite focusing on small-cap stocks, the KBWD offers investors relatively low-risk when compared with making an individual investment into one of these companies. As of current, the KBWD offers investors a dividend yield of 6.79%, a number that is certainly respectable. 

Are Dividend Stocks a good investment?

If you’re reading this article the chances are high that you’re considering investing in dividend stocks. They offer a great opportunity for investors to hold some of the world’s biggest companies while essentially earning interest. Below, you’ll find some of the advantages of investing in a dividend stock. 

Regular Payouts

The unique selling point of dividend stocks is the regular payouts they offer. These payouts typically occur either quarterly or yearly and can be worth almost 10% of your total investment. What you have to take into consideration is that if the stock price of your investment increases, you have two-fold earnings, the dividend payment, as well as the increased share price. This can result in far higher yearly earnings than with traditional stocks.

Passive Income

The goal of many investors or business people is to earn a sizable amount of passive income, after all, who wouldn’t want to earn something for nothing? Dividend stocks allow you to do exactly that, by investing a chunk of money into a high-yield dividend stock you can earn huge amounts of money, in turn allowing you to increase your position size. For example, a $100,000 (a lot I know) investment into the Altria Group would yield $7,910 a year in dividends alone, when combined with a YTD growth of almost 20% and you could be sitting on a profit of around $27,000. Not bad for pressing a few buttons right?

Investing in Dividend Stocks – What are the Risks

Although the benefits of investing in dividend stocks are high, they’re not without risk. There are several unique risks, with the primary being how dividend payouts affect earnings. 

Payout Ratio 

As we touched on briefly, before you pull the trigger on a dividend stock investment you should make sure to check out the payout ratio. The payout ratio is the proportion of a company’s earnings that are paid forward to its shareholders in the form of dividend payments. While this is simple enough on its own, what you have to be wary about is if a company has a payout ratio of over 100%, this means its dividend payments are greater than its earnings. If a company is paying out more than they’re making, they have to be accumulating debt, which as anyone will tell you isn’t great for the long-term prospects of a company. You might be asking yourself “why don’t they reduce dividend payments?” and while this is a logical question, if a company were to do that, it’s likely they would lose a portion of their investors, resulting in a decrease in the share price, causing further harm to the business.

Policy Changes

Many dividend stocks will have it in their agreement that they have the ability to change policies whenever they like. This is to protect the company and investors from a poor decision, spelling disaster for the company’s value. Take for example if a company had a high payout ratio, without the option of decreasing their dividend payout, this earnings deficit would likely spiral out of control.

How to Invest in Dividend Stocks with eToro

At Economy Watch, we understand how difficult it can be to get used to a new investment platform, which is why we’ve created this comprehensive guide explaining exactly how you can start investing with top brokerage eToro.

Step 1: Open an account with eToro

The first thing you’ll have to do before you can start investing is register with a reputable broker. After careful consideration we can recommend, they provide users with an intuitive interface, great security, and heaps of useful features. All you need to do in order to register is type “eToro.com” into your browser, press “Join Now” and fill in the necessary information. 

67% of retail investor accounts lose money when trading CFDs with this provider.

Step 2: Verify your account

Because eToro is a regulated platform, they’re subject to regular audits and have to comply with strict rules surrounding money laundering. As such they require all customers to verify their identity before investing. Luckily, this only takes a second and all you’ll need is a photo ID (passport, driving license) and proof of address (utility bill, bank statement). 

Step 3: Fund your account

Now that your eToro account has been verified, you’re only one step away from investing in your first dividend stock. All that’s left is to fund your account. To do this just click on the button marked “Deposit Funds”, type in the amount you plan on investing, and press “Deposit”. To ensure everyone can deposit without issue, eToro supports payments using a credit/debit card, bank transfer, or e-wallet (PayPal, Skrill, etc). 

Step 4: Buy some Dividend Stocks!

After the funds have arrived in your account you’re ready to invest! Just type your investment of choice into eToro’s search bar, select the relevant option, press “Trade”, enter the amount you want to invest, and press “Open Trade”. Your investment will be automatically credited to your account and can be viewed from the portfolio section. 

Conclusion

To summarize, investing in dividend stocks is an excellent way you can increase liquidity and begin to earn a passive income through the stock market. A dividend stock acts almost identically to regular stock, with the primary difference being that investors will receive a regular payment. This incentivizes investors to purchase more shares and hold them for longer, bolstering the share price of a company. It’s important to bear in mind dividend stocks aren’t risk-free and can actually be riskier than traditional stocks if you don’t perform adequate research. If you’re ready to invest in a dividend stock but aren’t sure which broker you should choose, after comparing countless options, we can wholeheartedly recommend eToro. They offer customers an extremely user-friendly interface, industry-leading security, and a huge range of dividend stocks and ETFs. Well, there we have it, you’ve reached the end of our guide on how to invest in dividend stocks, you’re now equipped with all the knowledge you’ll need to make your first investment in dividend stocks.

Best Platform to Invest in Dividend Stocks – eToro

1
$50Exclusive promotion
Our score10
  • Invest in a wide range of cryptocurrencies
  • Ability to copy more experienced investors and their decisions
  • eToro crypto wallet included which makes it beginner-friendly
0% Commissionstart TradingOur score 10

FAQs

What is a Stock?

What are Dividend Stocks?

Should I Invest in the Stock with the Highest Payout?

Dividend ETF vs Dividend Stock

What’s the Best Dividend Stock Broker?

 

 

About Jay Leonard PRO INVESTOR

Jay is a UK based cryptocurrency expert, specialising in fundamental analysis and medium to long term investments. He has a great deal of hands on experience in the space and a current focus on institutional adoption.