Since I received access to The Dividend Guy Blog email address, I got a very interesting question from one of our readers. Here’s what Michael had to say:

Im just starting to look into stock investing and potentially dividend stocks.

After some initial research, my question is this:

How can I make real returns from dividend stocks when the only companies with high dividend payouts have a high cost per stock? If dividends are paid per stock owned, I would need a large number of stocks, but for a large number of expensive stocks, I would need a large amount of capital. I dont have a lot of money to invest since Im just beginning (

$1000), so Im wondering if dividend-paying stocks are more of a strategy once I have an established portfolio and some money to move around.

This is probably one of the biggest questions an investor looking for dividend stocks may have:

W h en d o I start investing in dividend stocks? And, what can I do with my money in the meantime?

In my opinion, you can start investing in dividend stocks with an amount as low as $1,000 without taking too much risk.

You have actually 3 options. However, I would disregard the first option which would be to buy 38 shares of one company trading at $26. This wouldn’t make sense in terms of asset diversification and trading fees. However, you have options #2 and #3 that can be of a great help in your journey to build a dividend portfolio.

Option #2: Consider Dividend Paying ETFs

It is true that $1,000 is too small of an amount to start investing in the stock marketunless you consider ETFs! Exchange Traded Funds have been one of the most discussed investment products in the recent years. Why? Because they can track whatever you want to invest in (stock market, commodities, real estate, bonds and dividend stocks!). Because they are cheap in terms of fees (compared to mutual funds, ETFs are almost free in term of management fees). And also because they can be traded easily throughout the day.

You can then select an ETF that represents the best dividend paying companies and buy for $1,000. On top of that, you will receive a part of the dividend of each company tracked by your ETFs so it really replicates the fundamentals of dividend investing (i.e. receiving dividends along the way) while reducing your risk due to the concentration of your investment in a single stock.

If you are curious about ETFs that pays dividends, I have sorted the top 5 Canadian and 10 US dividend ETFs:

Top 5 Canadian Dividend ETF: