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How to trade and profit from the high dividend paying stocks

Updated on 2012-09-20 by Guest

Normally, making trading profit from a High Dividend paying stock is a difficult exercise. However, for an investor, it is safe to invest in high dividend paying stocks for a longer period and earn the dividend as well as the year on year appreciation on the stock value. High dividend paying companies, as the name suggests, pay out of dividend is higher and hence their ability to invest for further growth of the business become limited. However, high dividend paying companies grows on a steady pace, which is very good for long-term investors as well as people who are new to the market and also people who do have enough time to watch their portfolio daily.

See the chart below of National Grid Plc, which is a high dividend paying company in the UK:

It has been observed that stock prices of high dividend paying companies tend to rise prior to dividend payout and after the payout date, the price falls. This gives opportunity for swing traders. Those who interested in swing trades can buy high dividend paying stocks a month before the potential dividend declaration and get appreciation of price 20% to 30% and similarly one can sell them immediately before the dividend payout date at a high point and can have 20% to 30% profit.

The high dividend paying companies have a comparatively better performance and they provide a consistent growth. Therefore, a person holding high dividend paying company’s shares can continue to hold for a longer period of time and enjoy both the dividend payouts as well as the growth that is emerging out of the performance of the company.

The investors who are familiar with technical analysis can take advantage of the chart patterns, supports and resistance, etc. and earn a regular income from such high dividend paying companies by making frequent entry and exit at the support and resistance levels and continue holding and enjoy a wealth multiplying effect on their holdings.

As mentioned above the high dividend paying companies grows on a steady pace, along with the strategies explained above, one can also practice a systematic investment plan on the such high dividend paying companies. This is particularly helpful for people who have lower initial amount for investment. The people who and are also new to the investment scenario, however, could be able to provide a fixed monthly amount towards investment. In this case, such people keep on buying on a monthly basis with a longer-term view. Over a period of time they will accumulate a large number of such shares. Since they are buying every month a small number of shares, they will have the advantage of averaging. They can also earn the benefits of steady growth that is provided by the high dividend paying companies and also earn the high dividends declared by the company from time to time.

Success of the investment in stocks comes from certain skills. Apart from technical analysis skills and fundamental knowledge about the company, the successful investor should be able to pick his right shares at the right time. If the shares are right but time is not conducive or the time was right but picked at wrong time will not give the expected returns. This scenario is clearly visible in the above chart where the National Grid PLC’s price of 600 the beginning of the 2010 fell below 500 by mid 2010 and then started it steady growth. So if somebody bought at 600 levels, had to wait for about 9 months for his price to come back while the person bought at 500 during the middle of 2010 earned a handsome 20% return by that time.

So, in short I came to the conclusion that investment demands a certain level of technical and analytical skills. It also requires a perfect timing in order to achieve a high level of wealth creation, where it in the normal trading share of popular companies or high dividend paying companies that provide growth as well as regular income as explained above. In addition, it is my belief that it is not relevant whether one has bought shares of high dividend paying companies or not, what matters is the percentage growth his investment has achieved over a period of time.

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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.