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Steven Ircha Jr. is a student at the Bronxville School in Bronxville NY.
  • Investing In Dividend-Paying Stocks 0 comments
    Nov 30, 2012 3:34 PM

    Stocks that pay dividends are an appealing investment choice for individuals seeking income and growth while limiting their risk. In an uncertain economy, the stock market can be a risky place to put your money. Dividend-paying stocks have a number of advantages over stocks that do not pay a dividend.

    Many older Americans, who have retired or need extra money to supplement their income, invest in stocks that pay dividends. They simply love those checks coming in the mail. Who can blame them? Dividends can either be paid out to the shareholder of record, or, reinvested to purchase additional shares of the stock.

    Most big U.S. corporations pay dividends quarterly, although they may also be paid annually, semiannually or monthly. If you own 1,000 shares of stock and the Company pays a 4% dividend, you will receive approximately $4,000 each year, or, $1,000 every quarter. That money can be used to help you pay monthly expenses, or maybe take a nice vacation.

    Buying stocks that pay a healthy dividend usually means that you are investing in a mature and stable company. They generally do not fluctuate in price like an aggressive growth stock, but instead, grow slowly in bull markets and decline less dramatically in bear markets. A few examples of Blue Chip companies that pay a healthy dividend include Dow Chemical, Procter and Gamble, Eli Lilly, Intel, McDonald's and Lockheed Martin. However, during the most recent financial crisis, many high dividend paying companies collapsed in price and stopped paying dividends.

    With dividend paying stocks, total return on your investment is the combined sum of your dividends plus or minus any capital appreciation or loss. While a stock's price can go up or down, your dividend generally remains the same or goes up, unless the company announces a dividend cut or if the company is not doing well.

    One area of concern for individuals who invest in stocks that pay dividends is taxation. Currently, qualified dividends are taxed at a relatively low rate of 15%. If the Bush tax cuts expire at the end of 2012, dividends will be taxed at an individual's ordinary tax rate, which, for high income taxpayers, will be 39%. However, it is best to consult with your tax man to find out the exact implications of dividends on your personal taxes.

    In addition, some stocks pay dividends that are not classified as qualified. These dividends are generally taxed at a higher rate. Again, check with your tax advisor.

    Overall, dividend-paying stocks are a good idea for more conservative investors. One way to get around taxes is to hold these types of securities in tax-advantaged accounts like a 401-K or IRA.

    I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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