Dividend Stock fund

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Dividend Stock fund

Overview: Dividends are a portion of a company's profits paid to shareholders, usually quarterly. So dividend stocks are those that pay cash dividends - and not all stocks do that - while funds just package dividend stocks into an easy-to-buy unit.

Who are they good for? Buying individual stocks, whether they pay dividends or not, is more suitable for intermediate and advanced investors. But you can buy a group of them in a stock fund and minimize your risk. Dividend stock funds are a good choice for almost any stock investor but may be better for those looking for income. Those who need income and can invest for a longer period may find these attractive.

Risk: Like any stock investment, dividend stocks come with risks. They are considered safer than growth stocks or other non-dividend stocks, but you should choose your portfolio carefully.

Make sure you invest in companies with a solid history of increasing their dividends rather than choosing those with the highest current dividend yields. That could be a sign of trouble to come. However, even highly rated companies can face crises, so a good reputation is ultimately no protection against a dividend cut or the elimination of the dividend altogether.

However, you eliminate much of this risk by buying dividend stock funds with a diverse collection of assets, reducing your dependence on any one company.

Bonus: Even your stock market investments can become a little safer with dividend-paying stocks.

With dividend stocks, you can not only profit from your investment through long-term market appreciation, but also earn cash in the short term.

Where to get them: Dividend stock funds are available as ETFs or mutual funds at any broker that trades them. ETFs can be more beneficial because they typically do not require a minimum purchase amount and often have no commissions.

In contrast, mutual funds may require a minimum purchase and your broker may charge a commission for them, depending on the broker.