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# Dividend Investing
Dividend investing is an easy way to earn passive income. A $10,000 investment in a stock with a 5% dividend yield will provide you with $500 in yearly dividend income – all without you doing anything! So this is like an easy way to FIRE, which also stands for Financial Independence Retirement Early.


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In fact, the best dividend stocks can boost your total returns over time through a combination of dividend payouts and stock price appreciation. Think of, an enhanced compounding effect!

But not all dividend stocks are a good investment. For example, a stock with a very high dividend yield might turn out to be a dividend trap.

# Criteria for Choosing Dividend Stocks


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So now, there are 5 indicators that helps us identify a good dividend stock

# High Dividend Yield = Better?
While it can be tempting to pick stocks with the highest dividend yield, a high dividend yield can sometimes be misleading. Dividend yield is calculated by dividing a company’s annual dividend by its share price on a certain date. For instance, if the annual dividend is $3 and the stock price is $100, the dividend yield is 3%.

But what if the same stock falls to $60, perhaps due to company mismanagement? The dividend yield now becomes 5%, although the annual dividend itself remains unchanged. This scenario is often called a dividend yield trap.

A stock with a high dividend yield is attractive, but that’s not the only metric to focus on. You should also evaluate if the company can sustain and grow its dividend payouts over time.