Dividend Investment Strategy

5 Dividend Investment Strategies to Maximize Your Portfolio Return

A dividend investment strategy might be something many investors don’t think about. If you’re in search of capital growth than considering how to maximize your dividend income might be way down on your list of investment goals.

Research published by Morgan Stanley reports that more than 40 percent of S&P 500 growth (1930-2012) resulted from dividends. Dividends can make anyone’s portfolio grow, but dividend yields have declined with rising stock prices.

That’s great news if you bought high dividend-paying stocks years ago. If you want to increase portfolio return today, don’t forget about the future to capture relatively higher dividends now. Don’t choose stocks that sacrifice long-term growth potential. Reviewing your dividend investment strategy is one of the easiest ways to increase your portfolio return.

Managing Dividend Income in a Low-Interest Rate Environment

Various dividend investment strategies are available. If you plan to hold stocks over the long-term and you’re in search of capital gains, choosing stocks that consistently paid dividends over the long-term, you might consider buying “S&P Dividend Aristocrats stocks.”

Name-brand companies like Procter & Gamble and Wal-Mart are included on the Dividend Aristocrats list. These companies have paid investor dividends over successive decades, each year. Although stock dividends have outpaced bond yields in the recent past, most financial professionals agree that low-interest rates won’t last forever.

Popular Dividend Investing Strategy – Dividend Reinvestment

In a low-interest rate environment, investors sometimes worry about reinvestment risk. That’s because the opportunity to reinvest dividends and other portfolio cash flows at a similar rate of return may be challenging:

  • Let’s say you own ABC shares that currently pay a 4 percent dividend yield. To maximize portfolio growth, you don’t spend the money.
  • If you buy money market funds or instruments, your return is several hundred basis points less than the dividend yield. Your money is liquid but rates could go up or down.
  • Zero coupon bonds might be an option but, again, interest rates are very low. If you buy 30-year U.S. Treasury zero coupon bonds, your yield-to-maturity is about 2.4 percent. If interest rates go up in the future and you want to sell these bonds, you could lose money.

Reinvestment of dividends can have a real impact on portfolio performance. According to the Wall Street Journal, the return on a portfolio of S&P Aristocrats stocks increased almost 10 percent over a 20-year period!

Because dividend reinvestment can make such a difference in your portfolio’s return, a dividend reinvestment plan (DRIP) offered by each company in the portfolio makes sense.

By enrolling in DRIP plans, you’re managing reinvestment risk because dividends are automatically reinvested in partial shares of stock. There’s no reason to worry about market timing because the DRIP plan automatically buys new shares. You won’t need to worry about the “right price” or the “right time” to buy a stock that’s performed well over the long-term.

It’s simple. Without reinvesting your dividends, your portfolio probably won’t perform as well as it could. Even if everything else in your portfolio is well-balanced, failure to reinvest dividends will cost you:

  • In addition to other benefits, DRIP plans offer low costs. About 1,600 corporations currently offer DRIP plans at a minimal cost. If your shares are held in Street name at your broker-dealer, most firms will also help you enroll in DRIP plans and won’t charge you a commission to do so.
  • If stock prices in your portfolio have soared over the past few years, buying partial shares with your dividends can take the sting out of buying new shares.
  • Some corporations even offer investors a discount on new shares via their DRIP plans (usually 1 – 5 percent discount). Some firms that offer a discount include Aqua America and Piedmont Natural Gas.

The compounding power of DRIP plans can be one of the best and simplest ways to grow your wealth. Of course, DRIP plans aren’t a good fit for everyone:

  • Not all dividend paying stocks offer DRIP programs to their investors.
  • Your broker-dealer firm may offer a DRIP plan to accommodate you, but there may be strings attached. For instance, you might not have the option to buy fractional shares. In that case, you’d need to add capital to round up your purchase. Your broker-dealer might also need certain criteria to buy stocks through their DRIP plans.
  • If you want to maintain control of your dividends and avoid buying more of a company that’s currently overvalued. Than DRIP plans aren’t for you. Always consider the impact of broker commissions before deciding a new dividend-bearing stock is the best place for your portfolio income.

Dividend Strategy For the Short Term: Dividend Capture Strategy

With this dividend investment strategy, an investor can hold a stock for a short time, just long enough to take the dividend.

But, it’s not that easy to implement.

first, the investor needs to know the dividend dates, then he just buys the stock before the ex-dividend date and then sells it on the ex-dividend date or a little bit after.

in that way, the investor will get paid automatically. You need to remember that the investor expectations are to sell the stock at the same price he bought it or above.

Because of the short periods of time the investors are holding the stocks, this strategy is popular with day traders and active money managers.

the Advantages of the Dividend Capture Strategy are that there are lots of dividend-paying stocks, and an investor can find a stock with an ex-dividend date fairly easy.

this strategy doe’s not needed fundamental or technical analysis. It is pretty easy.

But, this strategy has its limitations. Because dividends supposed to reward long-term shareholders, you can see a negative price change on the Ex-Dividend Date to reflect the upcoming payout.

Brokerage Fees can hurt your profits, especially if you are paying a full commission to your broker.

The Bottom Line is:

The dividend capture strategy is for some short-term investors, day traders and active money managers.And those who

And those who seek to begin with this strategy have to do their homework carefully and research deeply for factors such as brokerage costs and taxes before they start, and it’s important to consult your financial advisor.

It’s important to note that I’m not a fan of this strategy because I prefer to invest and not to gamble with my money. But I don’t argue with those who believe in trading.

Out Of The Box Strategy to Add On Your Portfolio Dividend’s Income: Covered Calls and Premium Income

To own reliable dividend-bearing stocks today and increase current yield, you might also sell covered calls:

  • S&P’s Dividend Aristocrats have paid dividends over the years and, most importantly, investors have concurrently enjoyed long-term price appreciation in these shares.
  • Selling covered calls brings in extra portfolio income and hedges portfolio value by the amount of premium income taken in. Calls are options and considered short-term income.

Along with a corporation’s finances, it’s important to check any stock’s dividend yield before you make a decision to own it.

Keep in mind that writing calls on dividend-bearing stocks will require you to pay attention to ex-dividend dates. You don’t want to allow a call buyer to capture dividend income if the stock is called away.

According to NASDAQ, selling the covered calls on the day the stock goes ex-dividend may statistically increase your chances of success.

  • Successful covered call writing means you get to pocket the call premium income, net of transaction costs, and keep your shares.
  • The worst case scenario of writing covered calls means you’ll give up the shares on which you wrote calls, usually at a higher price than your cost basis. You keep the call premium income.
  • To decrease the chances of having your income bearing stock called away, consider writing out-of-the-money calls. That is, choose a call strike price that’s higher than the stock price now. Writing in-the-money calls is likely to generate higher premium income but increase the chances of having your stock called at or before call option expiry.
  • If you’re especially concerned about market volatility, selecting a covered call fund might make good financial sense, too.

Selling calls when you own the underlying shares is considered a relatively safe way to increase portfolio income.

An Ageless Way to Maximize Portfolio Return

If you’re a relatively young investor, you might believe that speculating on volatile stocks is a suitable strategy. After all, if you don’t need the money now and you pick stocks that are moving, you can increase capital faster, right?

  • Financial experts like Warren Buffett say no. Trading can increase portfolio risk. Remember, time in the market—not market timing—can grow your capital more consistently.
  • Traders often borrow money to increase the amount of stocks or options they can buy. Borrowing money adds to portfolio risk.
  • If the quality of life is important to you, investing in high quality, dividend-bearing stocks can lessen the stress of investing. Your dividend investment strategy means you can watch the markets less and enjoy life more.

Making the decision to buy quality stocks that pay dividends is a timeless wealth-building strategy. New investors and those nearing retirement age benefit from choosing higher dividend-bearing stocks with consistent track records:

  • Although some financial experts say you can take more portfolio risk at an early age, you might not like the idea of losing money as a trader. It can take a long time to recover trading losses.
  • Taking some risk is necessary as an investor, but investors don’t gamble. They never “bet” on stocks. They commit capital that isn’t needed to pay the rent or buy groceries.

Focus on More Than Dividends

So many financial products focus on dividends and dividend strategies. It’s important to see that the research shows investors need to look at stock growth prospects, not just the current dividend payouts.

Recent U.S. Federal Reserve reports say that more interest rate hikes are likely in the future. Although dividend-bearing stocks have been viewed as “quasi” fixed income instruments, it’s important to remember that stocks and bonds are different asset classes. Stock prices tend to decline in a rising interest rate environment:

  • If you’re a stock investor and you want dividend income, you’re assuming that the stock will continue to pay its current dividend or even increase dividends in the future. Be aware that sometimes even solid blue chip stocks cut dividends or even stop paying dividends. So Only Invest In What You Know And Understand.
  • The decision to invest over the long-term allows you to diversify financial assets. You can buy more of a dividend-bearing stock that’s performing well to lower its cost basis or decide to sell those that aren’t. You can reinvest money in shares that better meet your portfolio goals.
  • Research shows that the world’s stock markets offer great potential to build wealth over time. Selling quality stocks into a downturn is an avoidable risk to reaching that goal.

Resources I like and respect on dividend investing that can inspire you to start a journey towards your freedom.


The Balance is home to experts who know what they’re talking about, they’re here to deliver clear, practical advice that will strengthen your lifelong relationship with money so you can earn more, spend smarter, invest well, and build a more secure future.

This guy has a real passion for personal finance and investing. You can follow his investing journey to financial freedom to be inspired and start your own journey.

This guy shares a lot of free knowledge, and really like helping beginner investors.
You can follow his journey and strategy is to invest in dividend growth stocks in order to reach financial freedom at an early age.

Dividata is providing a free and convenient online resource for researching dividend-paying stocks, dividend analysis, and detailed dividend history at no cost.

Information, Tools, And Forms. The DRiP Investing Resource Center Your Location For Dividend Reinvesting Information


These guys are a leading worldwide independent provider of dividend information and data for investment professionals.

DividendInvestor.com is a powerful dividend-detecting resource. It contains the critical, time-sensitive data you need for income investments.


Dividend.com is a financial services website focused on providing comprehensive dividend stock research information, in the form of daily articles, data, and ratings.

Dividend.com offers free content available to the general public as well as premium subscription service.

https://www.quant-investing.com/ (DIVIDEND INCOME INVESTING)

Here you can find top notch research about dividend strategy investment, so you can do a lot better and successful with your dividend income investments.

About the Author Investegies Team

Leave a Comment:

Josh says January 18, 2017

I didn’t realize that dividends made up so much of the appreciation. I just started focusing on dividend stocks a couple years ago to help increase my passive income.

    Investegies Team says January 18, 2017

    I have heard lots of saying about dividend investments.
    Investing in dividend paying stocks are slow and boring, and dividend stocks are for widows.
    But the fact that most investors don’t know is: That over the past four decades, stocks with rising dividends outperformed every other type of stock (a study from Ned Davis Research and Oppenheimer Funds).
    So keep on the good work.

Xyz from OurFinancialPath says May 17, 2017

Great post! We focus on total market ETF but even in that approach, the dividends make up a large part of the total returns.

    Investegies Team says May 20, 2017

    The total stock market is a great way of diversified exposure.

Matt Miller says May 19, 2017

I love dividend stocks! They’ve been good to me over the last few years. I’m having a harder time finding new opportunities. Right now I’d be a buyer of Target (TGT) as a dividend stock but not much more. I already have some sizable equity positions so right now I’m trying to add more to my risk free investments.

    Investegies Team says May 20, 2017

    You are right, Matt,
    there are fewer opportunities nowadays, the average dividend yields are pretty low in the cycle.
    But Don’t Stop Looking For The Opportunities.

Brad - MaximizeYourMoney.com says August 10, 2017

Dividends are an important part of a good investing strategy for sure!

    Investegies Team says August 19, 2017

    Yes Brad,
    You are correct.
    Especially if you use reinvest dividends strategy I mentioned.

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