How Dividend Stocks Work and Why You Should Have Them In Your Portfolio

dividend paying stocks
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My Top 3 Dividend Paying Stocks (Summary)

  • CLM – Cornerstone Strategic Value Fund, Inc. Pays monthly dividends of between 20 to 30 cents per share.
  • O – Realty Income Corporation has been consistently paying monthly dividends for over 10 years.  The length and consistency in dividend payments make this a must-own stock.
  • OXLC – Oxford Lane Capital
Disclosure: I own all of the stocks being mentioned for this article.  The stocks mentioned have been thoroughly researched and real money has been invested in them for growth and income purposes.  Some of the stocks have been in my portfolio for longer than 1 year.  My intention is not to pump up interest in these stocks, but to provide genuine and thorough research so that you can make an informed decision.

I’m a big fan of growth stocks, those stocks that go to the moon soon after you buy it.   Maybe, we all lack the kind of patience for the trade to unfold in our favor.  Or perhaps, we all romanticize buying Apple at IPO in 1980 and still holding on today (for 40 years).

Patience is usually not a quality most investors posses.

But, what if you can reap monthly or quarterly income from the stocks you own?  Maybe, in the form of cash or in some cases, cash that can be reinvested into more shares.

This is what I’m hoping to find for you.  I’m drawing from my own experience with dividend growth stock investing.

One of my favorite dividend paying stock is Cornerstone Strategic Value Fund, Inc (CLM).  The per share price as of this writing is currently $15.07 and this stock pays MONTHLY dividends of $0.233 per share.

1 Year CLM ChartThe math works out pretty easy for this stock: $10,000 invested at today’s price of $15.07 would allow you to purchase 663 shares.  If you have a Robinhood account, you would pay $0 (Zero) commissions to buy the shares.  Basically, no cost to you while you accumulate the shares in your portfolio.

The 663 shares of CLM would produce $152.49 per month of cash income.  As you can see in the chart, they pay out each and every month.

The annual dividend payments from CLM alone comes to $1,829.88 (assuming you keep the cash in the account, if you reinvest it into more shares, obviously, your monthly payments will be higher due to more shares owned).

One thing to note is that some months CLM paid $0.284 and other months a bit lower.  You can expect with a reasonable degree of certainty that CLM will pay around 20 to 30 cents per share each month.

The next best dividend stock is Realty Income Corporation (O).  

One of the best things about Realty Income Corporation is the fact that it has paid consistent dividends over the last 10 years.

Realty Income currently trades in a channel in the $50 per share price.  Growth and price appreciation is somewhat the after-thought when buying Realty Income shares because the main objective is usually the monthly dividend payment.

Take a look at the historical dividend payment:10 year O History

Suppose you bought into Realty Income (O) about ten or so years ago using $10,000.  The initial shares would be 416 ($24 per share).

Today, the value of your investment from the growth aspect of it would be $23,712.  Not bad!

The real milk and honey comes from the dividend payments you received along the way.  That amount is valued at around $10,483.

The value of your investment would triple at the end of 10 years!  Not bad, indeed.

If you’re looking for payments that aren’t quite as frequent as the top two stock picks.  You may want to point your attention to Oxford Lane Capital (OXLC).  Oxford Lane pays a quarterly dividend of around 40 cents per share.

There are a few important things to note about Oxford Lane Capital.  The first one is that the dividend payment only started recently from this company.  They started paying quarterly dividends 5 years ago.

The other risky aspect is that the growth in price appreciation is on a downward trend.  In almost all of my trading accounts, I have a mixture of strategies that I implement.  The holdings on Oxford lane falls into my internal category called, “Long Shot Cash Income.”

I will speculate in the price growth, but I expect some cash payments for my patience.

Finally, Oxford Lane Capital is a relatively new issue.  They began trading in 2011 at under $20 per share. This could be some cause for concern because it doesn’t have the dividend payment history of something like JPMorgan Chase or Walmart.

I will admit that I own just a few shares of this company and I’m planning on holding it for a while just to see how the price will break out from this trading channel.  We’ll have to wait and see.

One other thing I must mention is that buying a dividend paying stock is quite different from buying a growth stock.  The transaction remains simple, but there are certain things you must be mindful of when entering into a trade for the dividend payments.

Know the Ex-Date of the stock.  The Ex-date is the date of record by which you are on the books to receive the next dividend payment.  The Ex-date is public record so you know when you have to act.  If you buy on the Ex-Date or after, you will not receive the upcoming dividend payment.  Here’s an example of Walmart’s schedule.

What I do is purchase the stock three days BEFORE the Ex-date to ensure I get paid the next upcoming dividend payment.

One thing I’ll mention is that stock prices usually decline immediately after a dividend is paid out to shareholders.  I suspect this is due to insiders selling shares to fund the dividend payments.  Of course, the official source of a dividend payout should come from the company’s earnings.  However, corporate governance don’t always follow the textbook.

We warned against Chipotle stock in March – April 2017, now it has declined -$136 per share.  See our recommendation here.

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About Brandon Foster 19 Articles
Brandon Foster writes about stock and options trading for Camtrading.com. He also writes product reviews for a prominent online publisher. Previously he managed an equity fund and daytraded full-time in Seattle. He currently lives in Portland, Oregon, and spends his free time thinking of new ventures to start.