Debating The 4 Best Times To Buy Dividend-Paying Stocks
Today’s article addresses this question: when to buy dividend stocks?
While there is no one exactly correct answer for every investor. Some instances improve the odds of success. When going about the business of dividend investing.
So, let’s discuss when you should invest in dividend stocks…
When Should You Buy Dividend Stocks?
The 4 best times to buy dividend stocks are:
- Anytime as part of a long-term dividend investing strategy
- Whenever you identify high-quality stocks that pay dividends
- When the overall stock market is down
- In time to capture the next dividend
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
Next, I want to address each of these cases. Then when you are done, but before you go.
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Otherwise, stick with me here.
Because you want an answer to your question: when should I buy dividend stocks…
1. Long-Term Dividend Investing
For anyone pursuing a long-term dividend investing strategy, anytime is a good time to buy dividend stocks. That includes now, next week, next month, and next year.
No matter where the overall stock market is trading. Or, the crazy things that are always going on in the world that make a person pause, before investing.
I find 3 things to be true to support my opinion…
First, history shows us that stock prices always go up over the long run. And when I say long run, I define it as a minimum of 5 years. Preferably longer.
Second, you have to get invested and stay invested. To start and continue earning stock dividends.
Which is one of the primary objectives of dividend investors. Specifically, a steady and recurring income stream from stocks.
Third, investing a consistent amount of fresh capital in dividend stocks now and every month going forward is a good approach. Because it allows an investor to take advantage of fluctuating stock prices.
Thus buying more shares when stocks are down. And fewer shares when stocks trade at high values.
For what it’s worth, this is what I practice. A strategy of consistently investing in and holding dividend stocks to achieve long-term goals.
And I have been doing so for more than 40 years. Now that’s long-term!
Okay. Moving right along…
Next, I have another best time to buy dividend stocks for your consideration…
2. Identify High-Quality Stocks That Pay Dividends
It is simply when you identify high-quality dividend stocks. That trade at reasonable valuations. And fit with your investment objectives.
Every investor has a different definition of quality. However, here are a few things I look for in dividend stocks.
And what do I do when I find these things? That’s easy. I invest!
Good Dividend Yield
A good dividend yield is high enough to provide an adequate dividend income today. But not too high.
Where a high dividend yield indicates that the dividend may not be sustainable into the future.
Dividend Growth
A company increasing its dividend makes for a more attractive stock.
Because it indicates management’s confidence in future business prospects. When they are willing and able to increase the dividend rate per share.
A Long History Of Consistent Dividend Payments
However, at least for me. It’s not good enough for a company to increase its dividend once. Or, just once in a while.
No, I want regular dividend payments and consistent dividend growth. Demonstrated by a long-term track record.
For this, I look to the Dividend Kings and Dividend Aristocrats.
They are stocks that have paid higher dividends to shareholders. And have done so every year for at least 25 years in a row.
Moderate Dividend Payout Ratio
Moderate dividend payout ratios vary by industry.
For example, it may be fine for a real estate investment trust or an electric utility to pay 80% of its earnings. In the form of dividends to shareholders.
But, that would be too high for a cyclical industrial stock. Where a 40%-60% payout ratio is more appropriate.
So, I judge payout ratios on a case-by-case basis. Knowing that a reasonable and well-managed dividend payout ratio is important. Mainly as an indicator of dividend stock safety.
Reasonably Valued
Stocks of great companies rarely go on sale. But when they do, it’s the best time to buy dividend stocks.
But when can you identify dividend stock bargains? Well, that’s the next point.
As we continue to examine this question: when should I buy dividend stocks?
3. When The Overall Stock Market Goes Down
We all love a good sale. When purchasing something we desire at a discounted price.
Yet, it’s so hard to invest when stocks are down. And going down every week.
Because when stock market corrections occur. And go deep into a bear market.
It’s no fun for us investors. To watch our paper profits evaporate.
However, by staying disciplined. And investing in dividends stocks that have proven to withstand the test of time.
You may find that these turn out to be your most profitable investments. Partly because of the capital gains you earn. Producing excellent returns as a result of a great time to buy stocks that pay dividends.
After reading this far. Maybe you don’t have the time to find the best dividend stocks. And determine the best times to buy them.
If so, consider a couple of my favorite resources. For doing exactly those things.
First, you may like the interactive database from Simply Investing. It covers hundreds of dividend-paying companies including all the latest metrics. Plus recommendations on when to buy the dividend stocks of your choosing.
Second, there is the Motley Fool Stock Advisor. A great investment advisory service with an excellent long-term investment track record or results.
Motley Fools Stock Advisor delivers stock recommendations to your inbox every month. So you can make regular purchases as part of your long-term investment strategy.
Finally, last but not least. Here is another good time to buy dividend stocks…
4. Capturing The Next Dividend
First, I’m not a big fan of practicing dividend capture strategies. However, it’s a topic dividend investors should understand.
Dividend capture is the practice of buying a stock in time to earn the next dividend. Then selling shortly thereafter.
It’s a short-term trading approach. Rather than pursuing long-term investment strategies.
In my opinion, a dividend capture strategy doesn’t make much sense. Not for long-term buy-and-hold dividend investors.
On the other hand, as long as you are buying. Why not capture the next dividend?
Do so by making your investment. Before the stock’s next ex-dividend date.
By doing so, you will capture the next dividend. And every dividend going forward.
Okay. That wraps up this discussion about 4 good times for buying dividend stocks.
So, allow me to conclude with a few parting thoughts…
Summary: When Should You Buy Dividend Stocks?
First of all, the best time to buy dividend stocks is now. As part of an established dividend strategy. An investment approach that seeks to identify, invest in, and hold the best dividend stocks for the long term.
Furthermore, you can improve your timing by investing more aggressively during stock market downturns. And by buying a stock before the ex-dividend date to capture its next dividend.
Okay. That’s all for today. I hope this article has helped you to understand when you should invest in dividend stocks.
And before you go, don’t forget to check out our…
Dividend Investing Content Library
…for a robust group of articles about making money from dividends.
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.