[Begin VIDEO with Kristin Arnold, Bankrate.com anchor introducing the video topic]
Intro: When the markets are volatile investors can still receive regular income from their stock investments via dividends. These dividend paying stocks tend to be more mature companies that generate consistent cash that they regularly deliver to share holders. Greg McBride, CFA, talks more about dividends.
[Cut to a double screen of Kristin Arnold and Greg McBride]
Kristin: What exactly is a dividend and what are the benefits of dividend paying stocks for investors?
Greg: Dividends are regular cash payments made to the shareholders of a company. Dividends can really add up, especially when reinvested, and studies have shown that dividends account for more than 40% of investors' total return. Companies that pay dividends also tend to produce steadier performance in volatile markets.
Kristin: Sound like dividends are a good option for investors ... what are some things investors should know going in?
Greg: First is that the dividends are not fixed as they are with bond coupons. The dividends come from profits, so a company downturn could jeopardize the dividend. Also, take the dividend yield - which is the dividend as a percentage of the stock price - with a grain of salt as a very high dividend yield may indicate nothing more than a company whose stock price has cratered and the dividend is in question. Finally, diversify among a range of different companies and industries so that tough times in one sector have a limited effect on your dividend income.
Kristin: What are some different ways investors can add dividend payers to their portfolio?
Greg: You can buy individual stocks, though it takes time and money to build a well-diversified portfolio this way. Instead, consider mutual funds and exchange-traded funds that hold dividend paying stocks. You can get in for modest minimums and you'll receive immediate diversification. Check out Bankrate.com's brokerage tables to open a discount brokerage account.
[Cut to one shot of Kristin on camera]
Tag: For more information on dividends and how they best fit into your portfolio, check out the investing channel on our main page at Bankrate.com. I'm Kristin Arnold.