Dividend Stocks For Beginners 2023 | Step by Step Guide

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A step by step guide on how to invest in dividend stocks for beginners in 2022.
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When it comes to dividend stocks the ultimate goal is to eventually live entirely off of the dividends that you collect. So the very first thing that you should do before you buy any stock is decide how much money you need to live every month.

Do you need $4000 dollar of dividends coming through. $10,000? If you prefer a more luxurious lifestyle maybe $20 or $30 thousand dollars. Then you’ve got a goal and something to work towards. This is what financial freedom is, not having to work and living entirely off your investments…

But in order to get there, we have to do the hard work. And that’s saving money, finding the right dividend stocks & building up a portfolio. So the very first question you might ask is how do I actually buy a dividend stock?

This is very easy. You need to sign up to a broker. A broker is simply a platform / a company that allows you to buy stocks. So if you’re in the USA and you’re new start with something like robinhood, or m1 finance. If you’re in Canada questrade is a good place to start. Or Australia, Stake or simply a bank can be a good safe option to go with. So start by finding a cheap but safe & secure broker to begin with.

And now it’s time to buy some stocks. But there are 10’s of thousands of dividend stocks to choose from? How do we go about picking the ones that will perform well and pay a strong dividend over the long-term? This is where it gets into the fun stuff. There are 7 key things that every dividend investor should go through before buying a stock…

First thing to look at is the dividend yield. Because if they’re not paying a high enough dividend, it’s probably not worth having it in your portfolio.
So the dividend yield is simply the price of the stock divided by the dividend.

For example Mcdonald’s stocks price is $234. It’s dividend is $5.16. Hence it’s dividend yield is 2.2%.
Abbvie the pharmaceutical company has a price of $115. It’s dividend is $5.20. $5.2 divided by $115 is 4.5%.
The average dividend yield in the USA is sitting at 1.37%. So you really want something that is higher than that average, when picking out a stock.

Next take a quick look at the payout ratio. Because the dividend yield may be great, but they may be paying out all of their earnings as dividends and leaving none in the business. You see what happens is a business earns money right, that’s what it’s supposed to do. With these earnings they can either choose to reinvest it in the business or pay it out as earnings. 2 options.

If they pay 30% as dividends, and leave 70% in the business, then the payout ratio will be 30%. If they pay 80% as dividends and reinvest 20% in the business then the payout ratio is 80%. You get the point but it’s important that every stock keeps at least some of their earnings in the business, so that they can use it to expand and grow.

For example Apple did not pay a dividend for 15 odd years, because they used every last penny that they had to reinvest in the business. Then they grew their business into something big and then started paying a dividend.
You don’t want to buy a stock that pays all of their earnings as a dividend because it’s a sign that they’re not expanding and could be on the decline… So find a balance in the payout ratio.

After that you want to take a look at the stocks dividend history. Just like if you get into a relationship with someone you want to take a sneak peak at their history. Or if you hire someone for a job, you want to see how they’ve performed in the past. It’s the same with dividends.

And it’s pretty simple to find out a stocks dividend history , all you have to do is type in the stock you’re looking at, we’ll use McDonalds again cause everyone knows McDonalds and then type in dividend history macrotrends. Click on the first website that comes up. And we want to scroll down until we see dividend payout.

What we’re looking for is for them to have consistently increased dividend payouts over time. This shows that they are reliable. And McDonalds they’ve been reasonably good with this.

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DISCLAIMER: It's important to note that I am not a financial adviser and you should do your own research when picking stocks to invest in. This video was made for educational and entertainment purposes only. Consult your financial adviser. * Some of the links on this webpage are affiliate links. This means at no additional cost to you, we earn a commission if you click through and make a purchase and/or subscribe. This has no impact on my opinions, facts or style of video.