17 Wicked Smart Dividend Investing Tips to Live by Now

Smart Advice For Getting Started With Dividend Investing

With nearly 50 years as a do-it-yourself investor, I decided it was time to pull together all of my best dividend investing tips.

They have worked for me. So, I’m hoping they can work for you too.

Without delay, here they are for your consideration. Because as I like to say, “finance is fun when you are making money!”

17 Smart Dividend Investing Tips

My best dividend investing advice for building wealth with dividends includes these 17 points…

  1. Know your investment goals
  2. Assess your risk tolerance
  3. Consider other types of investments
  4. Adopt a dividend investing strategy
  5. Know the key dividend metrics
  6. Invest in companies with strong dividend-paying histories
  7. Seek out companies with solid dividend growth
  8. Avoid high dividend yields
  9. Consider ETFs instead of individual stocks
  10. Know the best times to buy dividend stocks
  11. Take advantage of dollar cost averaging
  12. Reinvest all dividends
  13. Be patient and think long-term
  14. Stick with it when stocks go down
  15. Sell when the reasons you invested no longer exist
  16. Ensure your portfolio remains diversified
  17. Minimize income taxes

Next, let’s go through each of these dividend investing 101 lessons one at a time…

teaching dividend investing tips
Dividend Investing 101 – It’s Not Rocket Science!

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

1. Know Your Investment Goals

I’m a big believer in setting goals. Especially when it comes to investing.

Ask yourself what outcomes you desire to achieve. For example…

However, remember this important dividend investing rule. Specifically, dividend investing is a long-term game.

As a result, it’s best not to associate your short-term financial goals with dividend investing.

2. Assess Your Risk Tolerance

Investing in stocks of any kind comes with risk. Most noteworthy is the risk that stock markets will go down. Thus, taking your dividend stocks down in the process.

Yes, you can lose money investing for dividends. At least in the short term. But not usually over the long run.

So, if you can’t stomach the possibility of short-term losses. Either don’t invest in stocks. Or, manage the risk by keeping only a portion of your assets in dividend stocks.

To sum this point up, you need to determine an appropriate asset allocation strategy. That is consistent with your risk tolerance.

This means…

3. Consider Other Types Of Investments

If you aren’t comfortable holding all of your investable assets in dividend stocks, then don’t. Thus, determine the right amount of dividend stocks for your situation.

For the rest of your money, consider other less risky investment assets. Like certificates of deposit. Or, short-term investment grade bonds.

However, understand you will be giving up potential investment returns. In exchange for taking on less investment risk.

Okay. We are just getting warmed up. As today’s 17 dividend investing tips rolls on…

4. Adopt A Dividend Investing Strategy

Okay. You have decided to invest some or all of your savings in dividend stocks.

You have matched this desire with your long-term financial goals. And are ready to stick it out for the long-term in case stocks go down.

Now you need a strategy. Simply an approach to dividend investing that will guide your investment decisions.

So, here are three dividend investing strategies for you to consider:

Dividend Investing Strategy #1

High dividend growth, but less current income. Focuses on dividend stocks with rapidly rising dividends and lower dividend yields.

Dividend Investing Strategy #2

High current income, but less dividend growth. Focuses on dividend-paying stocks with higher dividend yields offering less dividend growth potential.

Dividend Investing Strategy #3

Balancing dividend growth and current dividend income. This is my favorite strategy.

Because it seeks to find the sweet spot between future dividend growth and current dividend yield.

Most importantly, choose a strategy that fits your investment goals. Then hone in on this next dividend investing tip to work your selected strategy.

Because successful dividend investing requires a strategy!

5. Know The Key Dividend Metrics

You can go very in-depth analyzing and selecting dividend stocks for investment. However, at a minimum, there are several metrics you need to be familiar with.

For example, lessons on dividend investing basics suggest these are the most important…

Dividend yield. It has a big impact on how much dividend income you will earn right away.

Dividend growth rate. Influences your future income based on a company increasing its dividends.

Dividend payout ratio. A measure of dividend payment capacity. Also, a lower dividend payout ratio typically indicates a safer dividend.

Stock valuation. Evaluating a stock’s per share price is a more subjective measure. But an important one nevertheless.

These metrics will help you build a measure of safety into your stock selections. Also, allow you to choose stocks consistent with your chosen dividend investing strategy.

You may also benefit from the Simply Investing Report & Analysis Platform. An interactive metric-driven database covering hundreds of stocks that pay dividends.

Including recommendations on the most attractively valued dividend stocks to buy. And, when to buy them

6. Invest In Companies With Strong Dividend-Paying Histories

Another way to safety-proof your dividend portfolio as much as possible is to choose stocks with strong historical dividend-paying track records.

By focusing on companies that have paid regular dividends for a long time. And have also increased those dividends annually for many years in a row.

For this, I like to use the lists of Dividend Kings and Dividend Aristocrats. As the first step in my dividend stock selection process. Stocks on these lists are also known as dividend growth stocks.

7. Seek Out Companies With Solid Dividend Growth

Because by starting with Kings and Aristocrats, you will be sure to have a powerful element of dividend growth included in your dividend portfolio.

Since a growing dividend tends to be a safer dividend. And a historically growing dividend will more than likely continue to be increased in the future.

8. Avoid High Dividend Yields

Even if you choose dividend investing strategy #2. Thus, concentrating your dividend-paying stock selections on higher current income.

I suggest being careful with high dividend yields.

Because dividend yields that stretch much beyond 5-6% can indicate slower dividend growth potential.  Or, in the worst case, greater investment risk. A risk that could result in a future dividend reduction.

In recent years, I’ve had more success leaning into dividend growth. And away from higher dividend yields.

Partly because of the stock recommendations I’ve received from the Motley Fool Stock Advisor. Their in-depth analysis takes a lot of the uncertainty out of picking stocks that pay dividends.

Thus, over time I have tended to steer away from higher-yielding stocks. Specifically, master limited partnerships and real estate investment trusts.

Of all of today’s dividend investing tips, this next one may surprise you…

17 tips for making money off dividends

9. Consider ETFs Instead Of Individual Stocks

Most dividend investors, myself included, choose to invest in individual dividend stocks. However, individual stock selection may not be for everyone.

So, it’s important to realize that you can execute your preferred dividend investing strategy. By investing in carefully selected dividend-paying exchange-traded funds (ETFs).

Sometimes keeping it simple with an ETF is the best way to go.

10. Know The Best Times To Buy Dividend Stocks

Most anytime is a good time to invest in dividend stocks. As long as you have a long-term investment horizon. And you are making smart investments consistent with your dividend investing strategy.

But there are better times to buy in than others. So, consider these options…

First of all, whenever you identify an attractively valued, high-quality dividend stock. It’s a good time to buy.

Furthermore, when the overall stock market is down. Bringing dividend-paying stocks down in the process. Thus, creating good investment values.

Finally, in time to capture the next dividend.

Better yet, forget about trying to pick the best time to buy. Also referred to as market timing and do the following instead…

11. Take Advantage Of Dollar Cost Averaging

Just dollar cost average into your dividend stocks. By setting aside a fixed dollar amount and investing that amount regularly.

For example, $100 every month. Or, $500 every quarter.

The exact amount and timing are up to you. And should be based on your specific financial situation.

Just be consistent about it.

Because by doing so you will buy more shares when the stock price is low. And less when the price is high.

In getting comfortable with dividend investing basics, be sure to consider point #12…

12. Reinvest All Dividends

Unless you need your dividend income for covering expenses. I suggest reinvesting all dividends received right back into your dividend portfolio.

You can do so automatically, by instructing your stock broker to do so. Reinvesting your dividends immediately into the stock that paid them.

Or, by letting your dividends accumulate in cash. And periodically investing that cash in the stock or stocks of your choosing.

I have used both of these dividend reinvestment methods over the years.

Automatically reinvesting dividends when I was younger. And manually reinvesting them as I have gotten older.

13. Be Patient And Think Long-Term

This dividend investing tip may be the most important out of all of them. Because dividend investing is not a get-rich-quick scheme.

On the contrary, it takes time, patience, and the proper discipline to get rich from dividends. So, you must think long term!

14. Stick With It When Stocks Go Down

Furthermore, long-term thinking is required when stocks go down. And your portfolio is losing value.

Since this can and will happen. So, start your dividend journey at a young age if possible. And stay the course over the years.

If you have implemented dividend rule #1, know your investment goals. And have followed dividend idea #2, by carefully assessing your risk tolerance.

Then sticking with your dividend investing strategy through both good times and bad should not be a problem.

15. Sell When The Reasons You Invested No Longer Exist

As a long-term dividend investor, it’s inevitable. You will make some not-so-good stock picks. It’s part of the learning process about investing.

Unfortunately, I have been through this more often than I would like to admit.

The most important thing here is this. Know the reasons why you bought a dividend stock in the first place. And if those reasons no longer exist, consider it time to sell.

On a more positive note, sometimes there are favorable reasons for selling…

16. Ensure Your Portfolio Remains Diversified

At times some of your best-performing stocks should be sold. Why?

Because if a high-performing dividend stock dramatically increases in value. Which is a good problem to have. Your portfolio may need better diversification.

What you don’t want is any one stock becoming too large a piece of the pie.

When that happens, sell off some of your best performers. Stay diversified by putting the proceeds in other stocks.

But be careful…

17. Minimize Income Taxes

Because today’s last of our dividend investing tips says to minimize taxes. And selling highly appreciated stock may create a taxable capital gain and corresponding tax liability.

To avoid this, consider holding your dividend stocks in a qualified retirement account. Also known as an individual retirement account (IRA).

On the other hand, when holding your dividend stocks in a taxable account. Look to minimize capital gains by offsetting them with capital losses.

Okay. That’s all of my best dividend investing advice. A walk through many theories you might find in a Dividend Investing 101 course.

Do they offer those in college? I don’t know. Probably not.

So, allow me to wrap up with a few parting thoughts…

Smart Dividend Investing Tips To Live By

I’ve been a dividend investor for a long time. And the tips I have discussed today have been a big part of building up our finances to where they stand today.

Have I made investing mistakes? Sure, everyone does. But, on the bright side, that’s how you and I learn and get better.

Most importantly, as I look back over today’s list of dividend investing rules. I can honestly say I have used every single one. And have done so for many years.

They are time-tested and battle-tested dividend investing pointers that put the odds in your favor and mine. For dividend investing success and building long-term wealth with dividend-paying stocks.

That’s all for today. Thanks for reading. And good luck with your investments.

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Author Bio, Disclosure, & Disclaimer: Please join me (Tom) as I try to achieve my goals, find my next place to live, and make the most of my money. But understand, I am not a licensed investment adviser, financial adviser, real estate agent, or tax professional. I’m a 50-something-year-old guy, CPA, retired finance professional, and part-time business school teacher with 40+ years of DIY investing experience. I’m just here because I enjoy sharing my findings and research on important topics. However, nothing published on this site should be considered individual investment advice, financial guidance, or tax counsel. Because this website’s only purpose is general information & entertainment. As a result, neither I nor Dividends Diversify can be held liable for any losses suffered by any party because of the information published on this blog. Finally, all written content is the property of Dividends Diversify LLC. Unauthorized publication elsewhere is strictly prohibited.

17 Dividend Investing Tips Explained