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Dividend payouts could hit $1.4 trillion globally in 2021 — here's how investors can take advantage

Dividends "give shareholders the opportunity for passive income."

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So far, 2021 has been a great year for investors: The S&P is up about 19% year to date, and in mid August had doubled from its pandemic low, marking the fastest bull market rally since World War II.

But investors are also getting a little extra in the form of dividends, a periodic payout of earnings that some companies and funds share with investors just for being a shareholder. 

Dividends paid to investors are forecast to hit $1.39 trillion globally this year, nearing a return to pre-pandemic levels, according to a new report from British asset manager Janus Henderson. A total of 84% of companies around the world either increased or maintained their dividends when compared with the second quarter of 2020.

During the first year of the Covid-19 pandemic, dividends slumped as business activity slowed and companies looked for ways to cut back.

"The rebound has been so much stronger than we anticipated, and I think it is very encouraging that we are seeing these companies feeling strong enough to return cash back to shareholders," Jane Shoemake, client portfolio manager for global equity income at Janus Henderson, told CNBC.

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Investing in dividend-paying stocks can be a smart strategy, says Winnie Sun, co-founder of Sun Group Wealth Partners in Irvine, California. Dividends "give shareholders the opportunity for passive income in addition to potential stock-price growth," she says.

Here's what to consider when adding dividend-paying assets to your portfolio, according to Sun.

How to use dividend payments to build wealth

Investors have the option to take dividend payments as cash, or reinvest them. Dividend income can be a valuable stream of passive income. If you reinvest your dividends, you use the dividend payments to buy more of the company's stock or to add to your stake in an ETF or mutual fund.

"If you're looking to supplement your monthly budget, you'd want to elect this as cash and have funds transferred regularly from your investment account to your checking account," says Sun.

However if you reinvest your dividends, you have the opportunity to take advantage of the power of compounding interest and watch that money grow over the long term.

Traits to look for in dividend-paying investments

Companies pay out dividends as a way to entice people to invest with them. But it's important to remember that even when you buy shares of a well-established company, there's no guarantee that the stock price will go up, or that the company will maintain its dividend, says Sun.

You don't need to invest in individual stocks to benefit from dividends. "Don't forget to look at dividend-paying mutual funds and ETFs as well," she says. "This can provide you with some passive income opportunities as well as a diversified portfolio of stocks, bonds, or even a mix of investments."

Before investing in a dividend-paying stock or funds that focus on them, consider how that investment fits in your portfolio. Dividend-paying companies tend to be more established than many of the so-called growth stocks, which can affect their returns. Dividends are also more common in certain industries, which can shift your portfolio diversification.

"Some traits to look for are stocks that have had a history of maintaining their dividends during previous economic downturns, conservative balance sheets, and future cash flows, and earnings," Sun says.

Make sure your portfolio contains a diverse mix of both dividend and non-dividend paying stocks and funds. That lets you benefit from the consistent performance of more established companies, as well as the potential growth of newer, and smaller companies.

"If your investment time horizon is long, and you understand the risks of your investment, this can be another way of bringing in some passive income in addition to enjoying potential portfolio growth on the upside," she says.

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