A dividend is defined as a distribution of reward from the company’s earnings to its shareholders. Investing in dividends is one of the slower and more patient approaches one may take when considering their investments. This type of investing belongs mostly to a more value-oriented approach, where traders look for stocks that are trading at a lower price than their intrinsic or book value shows.
Some of the most legendary investors, namely Warren Buffet, believe that every investor should reinvest dividends in order to increase the net worth. To that end, we present you with this list to help you identify some of the best dividend ETFs.
Factors To Consider Before Identifying Dividend ETFs
One of the first things to look for is the dividend dates. This is important to note since companies look at different time frames and dates to determine who qualifies for receiving the dividend payment. For instance, one should pay attention to such terms such:
- Announcement date – When the dividends are announced by the company
- Ex-dividend date – When the eligibility of dividend expires
- Record date – When the company decides who is eligible to receive a dividend
- Payment date – When dividend payments are issued
Furthermore, investors may want to look at companies that have strong cash holdings and low earnings expectations. The bottom line is that you should focus on companies that consistently deliver profitable growth.
Which ETFs should I pick?
As always, “one size fits all” doesn’t work in investing and trading business. Each trader should identify their own investing style.
In case you are looking to invest long-term, the value-oriented approach may be the best fit. The dividend returns may not be very high, but they should be consistent and reflect a healthy business. Those companies with higher dividends may also bring higher volatility and higher risks associated with their business.
Since dividend ETFs can be identified across the entire U.S. market, you may want to diversify your portfolio in order to limit your exposure to a particular industry or market.
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