How to invest in dividend stocks in UK
Investing in dividend stocks is a great way to generate a stream of stable income. Although higher dividend yield is considered favourable, dividend yield traps must be avoided. Dividend income may also get taxed.
Dividend stocks or dividend yield stocks are the stocks of the companies which pay regular dividends to investors. When investors purchase shares, they become partners to the profits that are generated by the company through its business activities. The company has a choice to either reinvest its profits for future growth and expansion or distribute a certain proportion of it among the shareholders. Dividends are the profits that are distributed by the company among the shareholders, and it is a great source of regular income via stock investments.
Why to choose dividend stocks
Although dividend payments may appear to be insubstantial in the short term, they can potentially make up a significant proportion of the total returns from your stock market investments in the long term. For example, when the dividends were not taken into account while calculating the returns, the FTSE 100 index returned only under 15% for the 10-year period to the end of 2016, while the total returns jumped up significantly to 67% when the reinvested dividends were also taken into account in the same period.
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