Why You Should Invest in Dividend Stocks
Plus, what to look for when you do.

In good times and bad, and especially in uncertain times, a wise investor looks past the hustle and hype and goes for consistency. A thoughtful long-term dividend strategy can provide that for your portfolio—and it's a particularly appealing approach in today's low-interest-rate environment.
The benefits of dividends are well-documented. Past performance doesn't indicate future results, but since 1960, 29% of Standard & Poor's 500-stock index's returns have come from dividends. They're known to provide a cushion against the scary ups and downs of the market, with lower volatility and a higher Sharpe ratio (risk versus return). And dividend payers tend to outperform non-dividend payers over the long run.
There are considerable tax benefits, as well. Qualified dividends are taxed as capital gains, often at a lower tax rate than interest and income tax. When it comes to legacy planning, inherited stocks can be passed on to your heirs at their current value, otherwise known as a step-up in basis. This potentially allows the estate to bypass paying capital gains on these holdings, leaving more money behind where you want it—with your children or other specified beneficiaries.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A dividend strategy may seem a slow, perhaps even boring, way to invest. You won't see the crazy-high yields some stocks offer—but you likely won't experience the gut-punch lows, either. If you do your homework and choose well, that is.
Here are some things to take into consideration when deciding which dividend-paying companies you should invest in.
Don't chase yield.
A lot of people chase dividends. After all, you're in this to make money, right? But sometimes companies declare dividends to grab investor interest and boost share price. That burst of benevolence doesn't necessarily mean it's a strong company or a good long-term purchase. Do your research: Can the company afford to continue paying dividends? If it can't, beware—there may be a dividend cut in your future. And the market has been known to punish companies for inconsistency.
Look for long-term stability.
Focus on the underlying strength of the business in which you are investing, not day-to-day or even year-to-year fluctuations. A mature company that has been delivering reliable dividends every year for decades isn't likely to stop. It's going to work very hard to maintain its reputation and not disappoint investors.
Target companies that increase their dividends over time.
Companies that increase dividends consistently dominate their industry. They tend to be more stable. They usually outperform the market; and when the market is down, they outperform the market even more. They have strong fundamentals, steady income streams and consistent earnings. And those reliable dividends are a good sign that management is looking out for its shareholders. (These stocks aren't inexpensive, of course. But they deliver the goods year after year, often for generations of investors.)
Watch out for overvalued stocks.
A lot of people are looking at dividend stocks right now because other yields are so low. The problem is that, when something is hot, it can become overvalued. Don't fall into the trap of looking only for a high-dividend payer. On the flip side, even consistent dividend payers can develop problems that can make them less profitable.
As with any financial strategy, education, balance and discipline are the keys when investing in dividend stocks. Do your homework—and if you need help, a good financial professional will be happy to answer your questions.
Kurt Fillmore is founder and president of Wealth Trac Financial, an independent financial services firm based in Bingham Farms, Michigan, specializing in customized wealth management and retirement planning. He is an Investment Adviser Representative and licensed insurance professional.
Kim Franke-Folstad contributed to this article.
Disclaimer
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Kurt Fillmore is founder and president of Wealth Trac Financial, an independent financial services firm based in Bingham Farms, Michigan, specializing in customized wealth management and retirement planning. He is an Investment Adviser Representative and licensed insurance professional.
-
Stock Market Today: Stocks Soar on China Trade Talk Hopes
Treasury Secretary Bessent said current U.S.-China trade relations are unsustainable and signaled hopes for negotiations.
By Karee Venema
-
2026 Disney Dining Plan Returns: Free Dining for Kids & Resort Benefits
Plan your 2026 Walt Disney World vacation now. Learn about the returning Disney Dining Plan, how kids aged three to nine eat free, and the exclusive benefits of staying at a Disney Resort hotel.
By Carla Ayers
-
SRI Redefined: Going Beyond Socially Responsible Investing
Now that climate change has progressed to a changed climate, sustainable investing needs to evolve to address new demands of resilience and innovation.
By Peter Krull, CSRIC®
-
Here's When a Lack of Credit Card Debt Can Cause You Problems
Usually, getting a new credit card can be difficult if you have too much card debt, but this bank customer ran into an issue because he had no debt at all.
By H. Dennis Beaver, Esq.
-
Going to College? How to Navigate the Financial Planning
College decisions this year seem even more complex than usual, including determining whether a school is a 'financial fit.' Here's how to find your way.
By Chris Ebeling
-
Financial Steps After a Loved One's Alzheimer's Diagnosis
It's important to move fast on legal safeguards, estate planning and more while your loved one still has the capacity to make decisions.
By Thomas C. West, CLU®, ChFC®, AIF®
-
How Soon Can You Walk Away After Selling Your Business?
You may earn more money from the sale of your business if you stay to help with the transition to new management. The question is, do you need to?
By Evan T. Beach, CFP®, AWMA®
-
Two Don'ts and Four Dos During Trump's Trade War
The financial rules have changed now that tariffs have disrupted the markets and created economic uncertainty. What can you do? (And what shouldn't you do?)
By Maggie Kulyk, CRPC®, CSRIC™
-
I'm Single, With No Kids: Why Do I Need an Estate Plan?
Unless you have a plan in place, guess who might be making all the decisions about your prized possessions, or even your health care: a court.
By Cynthia Pruemm, Investment Adviser Representative
-
Most Investors Aren't as Diversified as They Think: Are You?
You could be facing a surprisingly dangerous amount of concentration risk without realizing it. Fixing that problem starts with knowing exactly what you own.
By Scott Noble, CPA/PFS