Want a shortlist of high-conviction dividend stocks? Secure access to the top 10 dividend stocks watchlist when you

Dividend reinvestment plans (DRIPs) can quietly supercharge your returns by putting your dividends back to work for you. Instead of taking cash payouts, you automatically buy more shares, compounding your income potential over time. For long-term dividend investors, DRIPs offer a powerful path to wealth building with minimal effort.

With this in mind, let’s break down how they work, when to use them, and how Dividend Watch supports DRIP-focused investing.

What Is A Stock Dividend Reinvestment Plan?

A DRIP is a program that allows investors to automatically reinvest their cash dividends into additional shares of the same stock or ETF. Instead of receiving a cash payout, you receive more shares, sometimes even fractional shares, of the company.

There are two common types of DRIP plans:

: Most online brokers offer DRIP functionality that automatically reinvests dividends in the same stock.

: Offered directly by some companies, these plans may include perks such as discounted share prices or no fees.

While DRIPs are simple in concept, their long-term benefits lie in compounding.

When you reinvest dividends, those new shares generate dividends of their own. Over time, this cycle builds momentum and magnifies your total returns as both your rising share counts and dividends buy more shares at each payout event.

Let’s demonstrate the wealth-compounding benefits with an example using our 

. Say you invest $100,000 in the SPDR S&P 500 ETF (

) for 30 years, at an 8% annualized growth rate, and a 3% dividend growth rate.

With DRIP enabled, you’d have an ending portfolio value $1.212 million and 186.51 SPY shares. On the other hand, you’d have $1.056 million and 162.51 SPY shares with DRIP disabled. By simply enabling dividend reinvestment, you’d automatically be $156,000 richer.

Estimated portfolio value with DRIP enabled: Source: Dividend Watch

Estimated portfolio value with DRIP disabled: Source: Dividend Watch

The ideal stocks for dividend reinvestment plans are often 

 that have established track records of increased payouts. This process of double-compounding dividend and share growth can generate impressive results.

However, DRIPs aren’t the best option for every investor. If you’re retired or rebalancing often, consider pausing DRIPs in favor of cash payouts to cover expenses or rebalance your portfolio.

In taxable accounts, reinvested dividends are still considered taxable income in the year received, even though you don’t see the cash.

Each reinvested dividend creates a new tax lot, which can make cost basis tracking tricky.

This complexity is one reason why we suggest using DRIPs in tax-advantaged accounts, especially Roth IRAs. Dividends can grow tax-free by taking advantage of select Roth IRA dividend tax rules that keep Uncle Sam from taking his cut.

Setting up a DRIP in your brokerage account is straightforward with the check of a box. Most online brokers offer the option to automatically reinvest dividends when you purchase a stock. You can typically select this option during the initial buy transaction or enable it later in your account settings. Once activated, any dividends paid will be reinvested into additional shares without needing to lift a finger.

Even if your broker doesn’t show DRIP results clearly (trust us, we’ve tried!), tools like Dividend Watch help you track the effects of reinvestment.

There are situations where opting for cash dividends is a smarter choice than reinvesting them. Here are a few of those scenarios:

You want to rebalance into better-valued assets

Dividend Watch was built with dividend-focused investors in mind. So, of course, our 

r includes DRIP functionality. Most brokerages focus on account balances. Dividend Watch shows you the compounding power of dividend reinvestment. Here’s a brief overview of the DRIP features integrated into Dividend Watch:

You can enable DRIP for individual stocks tracked in your portfolio, automatically showing how your dividend income, share count, and percentage returns grow over time.

Enable DRIP functionality for individual stock holdings to get detailed income and return insights: Source: Dividend Watch

Our dividend calculator is ideal for running scenario analysis to forecast future dividend income and portfolio value, while also considering taxes.

Once you’ve mastered the basics of dividend reinvestment, you can start applying more advanced tactics to amplify results and stay aligned with your broader goals, including the following tactics:

: These not only increase your share count through reinvestment, but also raise the dividend per share over time, compounding income growth even faster as the cycle repeats.

: Take full advantage of tax-free compounding in Roth IRAs and tax-deferred growth in traditional IRAs.

: Review your portfolio periodically to prevent overconcentration in any one stock or sector due to continuous reinvestment.

: Track how your income grows relative to your original investment, an effective way to measure long-term reinvestment success.

One proof-in-the-pudding advanced tactic investors utilize is to turn DRIPs off when a stock becomes overvalued and manually reinvest into more attractive opportunities. This is the precise approach Warren Buffett employs, preferring to pocket the income that 

 dish out in favor of deploying that cash into the highest-value opportunity at any given moment.

But consider that this advanced approach only makes sense for seasoned investors with successful stock-picking track records.

No, but most dividend-paying stocks and ETFs at major brokerages can be set up for reinvestment.

It depends on your goals. DRIPs are better for growth investors in the accumulation phase; cash is better for income investors, such as retirees, who cover their expenses with dividends.

Can you reinvest dividends in a Roth IRA?

Yes, and it's one of the best ways to grow tax-free retirement income.

Most brokers offer limited DRIP insights, including information on how reinvesting affects portfolio values and returns. Use Dividend Watch to automatically access these insights and understand how DRIP affects returns and portfolio values.

What happens to partial shares when reinvesting dividends?

Most brokers will credit you with fractional shares when the dividend isn’t enough to buy a full share. These fractional shares behave just like full shares. They earn dividends and continue to compound your investment over time.

Dividend Reinvestment Plans (DRIPs): A Guide to Growing Income Automatically

Dividends can be a rewarding part of your investment strategy. Free money, right? Not quite. While they do offer income without selling a single share, Uncle Sam still wants his cut.

Understanding how dividend taxes work is key to maximizing the amount you actually keep. In this guide, we’ll walk through how dividends are taxed, what you might owe in 2024 and 2025, strategies to reduce or defer taxes, and more.

Dividends fall into two main categories for tax purposes: qualified and non-qualified, also referred to as ordinary. The distinction has a significant impact on how much you owe at tax time.

Qualified dividends are an investor favorite since they benefit from lower tax rates that match the long-term capital gains rates, which are 0%, 15%, or 20% as of 2025. But there’s a catch: not every dividend is qualified. To receive the qualified dividend tax rate, the dividend must meet all of the following, according to the IRS(1):

Paid by a US corporation or a qualified foreign corporation.

Not from a disqualified source (such as REITs or MLPs).

You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the 

Let’s run through an example since IRS verbiage is often written for lawyers rather than everyday investors.

) had an ex-dividend date of May 15, 2025. You must have held the stock for 61 days between March 16 and July 14. If you buy on March 20 and sell on June 1, you meet the holding requirement, and your dividend is qualified.

Preferred stocks have a longer holding period rule, which is more than 90 days during the 181-day period that begins 90 days before the ex-dividend date.

If your dividend doesn’t meet the criteria above, it’s considered ordinary income and taxed accordingly. That means up to 37%, depending on your tax bracket. This higher tax rate is the biggest drawback of ordinary dividends.

Common sources of non-qualified dividends include REITs, MLPs, certain foreign companies, and dividends received from stocks you didn’t hold long enough.

In the case of REITs and MLPs, these investments receive certain federal tax advantages when distributing at least 90% of their earnings to shareholders and operate as pass-through entities, which offer high yields. The tradeoff? You’re stuck paying ordinary income tax on those distributions.

Qualified dividend rates are tied to taxable income and filing status. Here is a detailed overview of the 2024 dividend tax rates applicable for taxes due in 2025.

Importantly, there is a 0% dividend tax for 2024 in various filing status scenarios, as outlined below.

The brackets inch up slightly in 2025. Here’s how they look:

As in 2024, there is a 0% dividend tax for 2025 in the following filing status scenarios.

On the other end of the income spectrum, high-income earners may also owe the 3.8% net investment income tax (NIIT) on top of these rates in 2025.

One handy feature we’ve built into Dividend Watch is the ability to set a portfolio-level tax rate, allowing you to gain practical insights into dividend income based on your tax settings.

Set a portfolio-level tax rate inside the Dividend Watch tracker to learn how taxes affect your income and portfolio returns. Source: Dividend Watch

Come tax time, your broker will send you a Form 1099-DIV. Here’s a quick rundown of where dividends are reported:

If you receive more than $1,500 in ordinary dividends, you also need to file Schedule B with your Form 1040.

Many investors overlook assessing their after-tax returns, especially when reviewing dividend yields. It’s an important step, as it provides a realistic picture of what you'll pocket. Thankfully, there’s a quick and simple way to calculate your after-tax dividend yield.

Let’s review an example to demonstrate the calculation, assuming a 5% yield and 15% tax rate. The actual return you can expect after taxes is 4.25% (0.05 x 0.85) after the government gets its cut of $750.

Even if you reinvest dividends through a dividend reinvestment plan (DRIP), they are still taxable in the year received.

The reinvested amount of each dividend becomes part of your cost basis in the stock. This is crucial when calculating capital gains or losses upon sale, so keep accurate records of the date of reinvestment, the number of shares purchased, and the price per share. Most brokers will automatically track the overall cost basis details, simplifying the process for many who 

Without these records, the IRS may assume a $0 cost basis, leading to overstated capital gains.

Using retirement accounts to hold dividend-paying stocks is a popular strategy for deferring or eliminating taxes on dividends. However, tax treatments differ based on the IRA account type.

Like capital gains, dividends earned or reinvested inside a Roth IRA are not taxed, as long as qualified withdrawal rules are met.

Dividends in a Traditional IRA aren’t taxed when earned but are taxed at your ordinary rate when withdrawn, just like any qualified withdrawal.

We’re fans of investing in IRA accounts for these reasons, especially if you qualify to make Roth IRA contributions. You won’t get hit with a tax bill for capital gains and dividends, allowing your investments to compound tax-free.

There’s an extra wrinkle that can add complexity at tax time if you invest in foreign dividend stocks. When you invest in international stocks or funds that hold foreign companies, you may be subject to foreign withholding taxes on the dividends you receive, often deducted automatically before the dividend reaches your account.

Fortunately, you may be able to claim a credit or deduction for those taxes using the Foreign Tax Credit (Form 1116), which helps reduce double taxation.

Not all investors need to file Form 1116. If your total foreign taxes paid are $300 or less ($600 if married filing jointly), you can typically claim the credit directly on your Form 1040.

It’s also worth noting that some foreign dividends may not qualify for the lower qualified dividend tax rates, depending on the issuing country and how long you held the investment.

Dividend taxes for other investment types

The tax treatment for other security types can vary depending on the investment vehicle.

ETFs pass along dividends from the stocks they hold. If those dividends are qualified at the fund level and you meet the holding period requirement for the ETF, they may be taxed at the qualified rate, just like stocks.

Dividend distributions from REITs are typically non-qualified and taxed at ordinary income rates, as these corporate structures already receive tax advantages as pass-through entities.

Preferred dividends are typically qualified. However, the holding requirement is stricter, with a 90-day holding period within a 181-day period that begins 90 days before the ex-dividend date.

To avoid taxes on dividends, consider holding dividend-paying stocks in a Roth IRA, where qualified withdrawals are not taxed. Additionally, you can reduce your taxable income to fall within the 0% qualified dividend tax bracket, effectively eliminating federal taxes on qualified dividends.

Yes. Even if you reinvest dividends in a taxable brokerage account, they are still reported as income and taxed in the year you received them. The reinvested amount increases your cost basis, potentially reducing future capital gains. Reinvested dividends are not taxed in a Roth IRA, letting your investments grow tax-free in this type of tax-advantaged account.

https://www.irs.gov/forms-pubs/about-publication-550

How Are Dividends Taxed in 2024–2025? Rates, Rules, and Strategies

Dividend stocks have a loyal following for one simple reason: they pay you just for owning them. Whether you're chasing steady income, building long-term wealth, or just want a more resilient portfolio, dividend-paying stocks offer a powerful mix of cash flow and compounding potential. With this approach in mind, let’s turn your portfolio into a passive income machine. Here's a handy step-by-step guide to help you get started.

Buying dividend stocks doesn’t need to be complicated. With the right strategy, it can be a smooth and rewarding experience, even for beginners. Here’s how to take your first steps into the world of dividend investing.

, you’ll first need a brokerage account. Most online brokers today offer commission-free trading, fractional shares, and easy-to-use platforms that can help you get started with as little as $100. Popular options include Fidelity, Schwab, Vanguard, and newer platforms like Robinhood or SoFi. What they all have in common is that it’s simple, fast, and free to open most basic brokerage accounts.

You’ll want to consider tax efficiency here because where you hold your dividend stocks can impact how much of your income you actually keep. Some accounts let you grow your dividends tax-free, while others offer more flexibility for accessing cash. Here's a quick breakdown:

: Ideal for flexibility, particularly for early retirees or those seeking to tap into dividend income before reaching retirement age. Just know you may owe taxes on what you earn each year.

Tax-advantaged accounts (like a Roth IRA or traditional IRA)

: These accounts shield your dividends and capital gains from taxes now or later, making them ideal for compounding returns over time. Roth IRAs are especially powerful investment accounts for investors, as dividend taxes in Roth IRAs can provide significant advantages, including tax-free reinvestments.

Not all dividend stocks are created equal. Some offer sustainable, growing income, while others may lure you in with high yields but lack the fundamentals to back them up. Here are some essentials to consider when evaluating potential picks:

: This tells you how much income a stock pays relative to its share price. Be cautious, as an unusually high yield can be a red flag for underlying business issues.

: A consistent track record of dividend increases is a sign of financial stability and management confidence. Look for companies with multi-year growth streaks.

: This measures how much of a company’s earnings are paid out as dividends. A moderate payout ratio of less than 60% suggests the dividend is sustainable, leaving room for reinvestment in revenue growth.

: Strong cash flow, low debt, and a durable competitive advantage are key traits of companies that can support and grow dividends over time.

If you're just starting out or want a more hands-off approach, consider dividend aristocrats, dividend kings, or 

. These options provide diversified exposure to companies with a proven track record of increasing dividends. We’ve also produced an in-depth guide to the 

 if you’re looking for specific ideas to research further.

Once you've identified the dividend stocks or ETFs you want to buy, it's time to figure out how much to invest. This step is crucial if you have a specific income goal in mind, such as earning $500 per month in dividend income or covering a recurring expense with dividends.

Start by identifying your desired annual dividend income, then work backwards using the average yield of your selected investments. For example, if your goal is $6,000 of dividend income a year and the average dividend yield is 4%, you’d need to invest $150,000 ($6,000 ÷ 0.04).

One general rule of thumb for simplifying the determination of how much to invest is to use the 25x dividend rule. Just multiply your desired annual income by 25 to determine how much you’ll need to invest. This rule assumes a 4% portfolio yield, so you’ll need to multiply by more than 25 if the average portfolio yield is lower.

Once you’ve picked your stocks, it’s time to put your plan into action by placing your order through your broker. From there, consider enrolling in a dividend reinvestment plan (DRIP). This powerful tool lets you automatically reinvest your dividend payments into additional shares, no extra effort required. Over time, this reinvestment snowballs into larger payouts, accelerating your portfolio’s compounding potential. It’s a simple, hands-off way to keep your money working for you.

To help you model the impact of reinvesting dividends, try using our 

. The calculator includes DRIP functionality so you can visualize how reinvested dividends grow your portfolio over time. It’s a great way to set realistic income goals and understand if DRIP investing makes sense for your investing goals.

Tracking your dividend portfolio is just as important as building it. Without a clear view of your income and performance, it’s easy to miss signs of trouble or opportunities to optimize.

While many brokers offer limited insight into dividend-specific metrics, Dividend Watch’s portfolio tracker is built specifically for dividend investors. It tracks income, yield, diversification, and dividend growth in one place, making it easy to stay on top of your strategy without getting lost in generic dashboards.

The dividend summary view inside Dividend Watch's portfolio tracker provides in-depth dividend analytics that most brokers lack. Source: Dividend Watch

Dividend stocks are a great fit for investors who want more than just long-term gains. They’re especially appealing for:

: Retirees or early retirees who rely on consistent cash flow to cover expenses without dipping into principal.

: Those reinvesting dividends can harness the power of compounding, which quietly accelerates growth over time.

: Dividend-paying companies are often well-established, cash-generating businesses with lower volatility compared to high-growth stocks.

 are “yield traps” with unsustainable payouts, and growth stocks may outperform over long horizons. That’s why blending dividend strategies with growth exposure can help create a more resilient, well-rounded portfolio.

Buying dividend ETFs may be a smarter choice

If you're looking for a simpler, lower-maintenance way to invest in dividend-paying companies, dividend ETFs can be a powerful option. They bundle together dozens, or even hundreds, of dividend stocks, offering instant diversification and lower risk from individual stock volatility. Many ETFs also follow strict dividend growth or quality screens, helping you avoid underperformers without needing to research each stock.

Dividend ETFs are especially useful for beginners, time-starved investors, or those managing larger portfolios who want consistent income without having to monitor every company. You still get exposure to dividend income and potential capital appreciation but with less guesswork.

What account should you buy dividend stocks in?

Where you hold dividend stocks can make a big difference in your after-tax returns and in how efficiently your dividends compound over time. Choosing the right account type helps you reduce dividend taxes, maximize reinvestment potential, and align your strategy with your income goals. Here's a breakdown of the key options to consider.

Ideal for long-term dividend investors. Dividends grow and can be withdrawn tax-free after age 59½ (as long as you meet the 5-year rule). Perfect for DRIP investing and compounding, making it ideal for younger investors focused on compounding.

Offers tax-deferred growth. You won’t pay taxes on dividends now, but withdrawals in retirement are taxed as income.

It offers flexibility, as you can access dividends at any time without incurring early withdrawal penalties, as with IRAs or a 401(k). But you may owe taxes on dividends each year, depending on your income.

Using a mix of these accounts gives you more control over when and how you use your dividend income. For example, taxable accounts let you tap dividends early without penalties, while Roth IRAs grow your income tax-free for the long haul. Traditional IRAs help reduce your taxable income now, even if taxes come later. By strategically spreading your dividend investments across account types, you can manage tax exposure, preserve flexibility, and keep more of your earnings working for you.

How to Buy Dividend Stocks: Step-by-Step Guide for Beginners

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. Expressed as a percentage and commonly measured over the trailing twelve months, dividend yield allows investors to quickly gauge how much income they can expect to earn from an investment based on its current share price. For example, if a company’s stock trades at $100 and it pays $3 in annual dividends, the dividend yield is 3%.

 that investors often turn to as a quick, insightful snapshot of a stock’s income potential. It helps them sift through income-producing opportunities, compare companies head-to-head, and decide if a stock aligns with their goals, whether that’s earning steady income now or building wealth through dividend growth over time.

Dividend Yield Formula: Example Calculation

Here’s how it plays out in real life using Apple Inc. (

) plugged into the dividend yield equation.

 = (Annual Dividend per Share / Share Price) × 100

Apple recently paid an annual dividend of $1.01 per share, and its stock trades at around $200, resulting in a 0.505% dividend yield.

That yield means if you put $1,000 into Apple stock, you’d earn $5.05 per year in dividends, assuming no changes.

You can also calculate dividend yield on a broader scale by dividing the total dividends paid on the cash flow statement by the company’s market capitalization. It’s the same concept, just zoomed out from the per-share level to the entire company.

Dividend yield is one of the first numbers savvy investors look at, and for good reason. It offers a simple yet powerful way to understand how much income a stock might generate based on your current investment.

It’s especially helpful for income-focused investors who rely on regular payouts, like retirees or those building cash-flow-driven portfolios. A solid dividend yield can give you an idea of your expected cash return, helping you gauge whether a stock fits your financial needs.

Dividend growth investors also keep a close eye on yield. By comparing a company’s current yield to its historical average, they can spot opportunities that might indicate undervaluation or potential red flags.

But remember that higher isn’t always better. A sky-high yield might look tempting, but it can also be a warning sign that the dividend isn’t sustainable. On the flip side, a modest yield from a company with a rock-solid track record of growing its dividend can lead to far better long-term results. It’s not just about what the dividend pays today. It’s about what it can become tomorrow.

On its own, the dividend yield offers a helpful snapshot. Still, it becomes far more powerful when combined with other metrics, such as payout ratio, earnings growth, and dividend growth history. Think of it as the starting point for deeper analysis, not the final answer.

A rising dividend yield might be a golden opportunity or a flashing red flag. If a company usually yields 2% and now offers 4%, it could be undervalued. But it might also be struggling, with a falling share price inflating the yield. Context is everything.

That’s why seasoned investors compare current yields to historical norms, examine dividend coverage, and scrutinize sector trends. Used wisely, dividend yield helps you screen stocks, uncover value, and understand how the market feels about a company’s payout future.

There’s no universal "perfect" dividend yield as it depends on your investment goals and risk tolerance. But there are some helpful benchmarks to guide expectations.

 – These aren’t the highest yields, but they shine over time. The real value here is in steady payout increases and long-term compounding.

 – These are appealing for those who want more immediate cash flow. But with higher yields often comes higher risk. Watch out for companies with unstable businesses or unsustainable payout ratios.

Dividend yields can vary dramatically depending on the sector, and for good reason. Each sector and industry has its own approach to profits and macroeconomic characteristics that affect cash flow stability. Some companies reinvest aggressively, while others return more to shareholders. Here’s a quick rundown of ballpark yield ranges by sector.

 – Energy stocks can offer juicy yields, but beware that their payouts are highly tied to commodity prices and market swings.

 – Because earnings in this sector are tied to economic cycles, companies tend to keep dividends lower to stay flexible during slowdowns.

 – These companies sell essentials, making their cash flows more stable. That stability supports consistent, growing dividends.

 – Banks, insurers, and asset managers tend to offer solid, dependable dividends, especially when interest rates are favorable.

 – A balanced mix. Many healthcare firms return cash to shareholders while still investing in R&D and regulatory hurdles.

 – A mixed bag. Capital-intensive firms may pay less, while stable operators often return a decent share of earnings.

 – REITs are legally required to distribute most of their income, making them popular among income investors.

 – Tech companies often pour profits back into innovation and growth, so dividend payouts are modest. But when a tech firm does pay a dividend, it often signals maturity.

 – With high infrastructure costs and steady cash flows, telecom firms often deliver reliable dividends to shareholders.

 – With predictable demand and regulated pricing, utilities are dividend workhorses. Yields tend to be high and steady.

Beyond dividend yield, several related metrics offer a deeper look into income potential and performance over time. These ratios help investors assess future dividend income or evaluate how their yield has grown since purchase, which are key insights for anyone focused on building a reliable dividend portfolio.

Forward dividend yield projects dividend yield based on expected future dividends, not the trailing twelve months. This forward-looking measure is especially useful when companies are growing or cutting dividends, so it should be used to estimate income based on upcoming changes.

Yield on cost compares the annual dividend income to the original investment cost. For example, if you bought a stock at $50 and it pays $2 annually, your yield on cost is 4%, even if the stock now trades at $100 and has a trailing dividend yield of 2%. This metric is useful for tracking long-term income growth from dividend-growth stocks.

While dividend yield tells you the return based on the stock price, the payout ratio shows how much of a company's earnings are being paid out as dividends. A high yield with a high payout ratio may be unsustainable if the company is unable to cover the dividend with earnings, requiring other sources of capital, such as equity or debt financing. Comparing the two ratios can help gauge the safety of dividends.

Not all dividend income is treated equally, especially depending on the account type in which you own dividend stocks. After-tax yield is what really matters for taxable brokerage accounts, because dividend taxes can take a real bite out of your income. You can calculate the after-tax yield as follows.

For example, if a stock yields 4% and your tax rate on dividends is 15%, your after-tax yield is 4% × (1 – 0.15) = 3.4%. Your actual return depends on both your tax bracket and the type of account in which you hold the investment, such as taxable accounts versus IRAs or Roth IRAs.

 to understand the potential growth of your portfolio and how taxes affect returns and reinvested dividends.

As of June 2025, the S&P 500’s dividend yield is 1.25%, according to data from 

. The relatively low yield reflects the index's heavy weighting in growth-oriented tech stocks that reinvest earnings rather than pay dividends.

In contrast, the Dow Jones Industrial Average, composed of 30 blue-chip stocks, generally carries a higher yield than the S&P 500. As of June 2025, the Dow’s average dividend yield is 1.78%. This higher yield is largely because it includes mature, dividend-paying companies in sectors such as industrials, healthcare, and consumer goods.

You can find dividend yield data on most financial platforms, but for dividend-focused investors, specialized tools matter. Dividend Watch’s 

 offers a streamlined dashboard that shows yield data for individual stocks, watchlists, and your full portfolio, making it easier to evaluate income potential at a glance.

Get detailed portfolio-level yield analytics to simplify planning income and stock diversification. Source: Dividend Watch

Instantly access detailed dividend insights for individual stock holdings. Source: Dividend Watch

Dividend yield contributes to your total return along with share price appreciation. A 3% yield plus a 5% stock gain equals an 8% total return. High yields can boost returns, but only if the underlying stock performs well too.

What’s the difference between a dividend and dividend yield?

A dividend is the actual cash payment a company makes to shareholders. Dividend yield is the payment expressed as a percentage of the stock price, giving you a way to compare income potential across investments.