Dividend paying stocks are one of the most effective investments to have in your retirement or wealth-building portfolio, but which are the best paying dividend stocks? We’re here to help you find the best dividend stocks for your portfolio, the ones that consistently pay the highest yields. One of the best ways to choose high dividend stocks is to calculate the dividend yield and the dividend rate and to understand what they mean and what they don’t mean.
What Is the Difference Between Dividend Yield and Dividend Rate?
The dividend yield and dividend rate are two ways to figure out the return on investment for dividend paying stocks, but they measure different things.
Dividend yield is a ratio that compares how much a dividend stock pays out annually in relation to its share price. You figure it out by dividing the annual dividends per share into the price per share. If you own dividend shares that are selling at $20 per share and paying out $1 per share dividends annually, the dividend yield is 1/20, or 5%.
Dividend rate is the total dividend payments expected from your investment in dividend paying stocks, expressed on an annualized basis, with any additional non-recurring dividends received during that period added. To calculate the dividend rate, you multiply the most recent dividend payment by the number of payments per year and add any extra dividends to the product. If you own a stock that pays out $.25 per share per quarter and pays an additional one-time extra dividend of $.15 per share, the dividend rate would be $.25 times 4 plus $.15, or $1.15 per year.
Either piece of information can help you calculate how which are the best dividend paying stocks. In general, if you’re building a portfolio of high dividend paying stocks for income investment, you should concentrate on dividend stocks with dividend yields of between 5% and 10%. Yields about 10% are risky because few companies can sustain those yields for long.
More importantly, if you’re planning to invest in a dividend stock, you should know that the dividend rate and dividend yield don’t tell the whole picture. It’s important to look at a company’s history and dividend payout history over time to get a fuller picture of the stock’s reliability.
Let us help you pick the best stocks for dividends and high dividend paying stocks for your investment portfolio. Check back often to get recommendations for the best dividend stocks and high paying dividend shares to buy.