Many investors choose to invest in dividend-bearing stocks, or mutual funds focusing on dividend payers, as part of their portfolio. And those dividends can pay off in a major way. Investing in dividend-bearing stocks can be a great choice for investors who are thinking long-term. You may receive dividends in stock or cash, and you can frequently reinvest cash dividends to buy more stock.
Depending upon how you receive dividends, you may need to plan ahead for tax day. Specifically, it is important to understand the different types of dividends, what you can expect as far as paying taxes on them, and how to read the 1099-DIV tax form so you’re adequately prepared.