Do You Want to Make Money Doing Nothing?
Dividends are for you.
Investing in the stock market is no minor task. There are hundreds — if not thousands — of methods and terms to learn, especially if you are braving Wall Street on your own.
Yet so many people take part in the money games. Some have even earned their great fortunes through the charts and numbers that represent all of the publicly offered companies.
But why should you invest? There are plenty of rewards to reap when you start investing. One of the more important benefits is a dividend.
Dividends are Like a Reward For Investing
When a company does exceptionally well on profits, the company can share the wealth with investors. Although a majority of earnings are kept within a company for business activities, the remainder can be given to those who hold stock in the company as a dividend.
An example
In 2017, Apple earned a whopping $48 billion in profits. Even after pouring huge amounts of money back into their company, there is no possibility that the company could spend all of that dough. So instead of hoarding the cash like a movie super-villain, Apple’s board of directors elected to give this money out as a dividend to all stockholders. Not only does this encourage more people to invest in the company, but a dividend payment will ensure that investors will stick around for longer.
Above, there isn’t much info about dividends; only the dividend yield, which is the percentage of the share price that’s paid out to you as a dividend per year. While a yield of 1.20 is generally considered low, Apple has a higher stock price than many competitors. Let’s say the stock has a price of around $200. Doing some basic math, you come up with the Annual Payout of around $3.08 of dividends per share. As long as Apple stock price doesn’t deviate too much, you will get paid around $3 per share just for owning the stock. Since Apple pays out dividends quarterly, the $3 will be split and paid out into four parts throughout the year.
Apple isn’t the only company paying out, however. Most of the large, established companies pay out a dividend. Some notable ones are:
- Microsoft
- Ford
- General Motors
Which Companies Pay Dividends?
Usually, established companies with predictable profits are more likely to pay out dividends. These larger companies are no longer seeking out huge growth and pay their shareholders as a way to keep them invested.
Start-ups and high-growth companies can pay out dividends as well. However, they will more than likely not be regularly-paid dividends. Due to the nature of new businesses and companies with a lot of room to expand, funding might not be available to pay out consistently like an established company.
Show me the money!
Normally, dividends are handed out quarterly or monthly.
Although, it’s really up to the company! Special dividends, like those that may be given out by start-ups or the high-growth companies, can be given out at any time and usually will not follow a schedule.
Why Should You Invest in Dividends?
If you’re investing for the long (very long) term, almost nothing can compare to dividend stocks.
Low risk
First and foremost, dividend stocks are less volatile than other stocks. Companies that offer a regular dividend payment are typically established companies that can ride out downward trends in a tough market.
Not only does this mean that the stock is good because it pays you just to own shares, but also because a low volatility stock is necessary for investing for retirement.
Also, once a dividend is offered, many companies are reluctant to take it away, as it could reflect badly on their financial status and may scare investors. The chances are that a large company that pays out a dividend will do so for a long period of time.
Automatic reinvestment
As you being to receive dividend payouts, many investing firms and platforms have the option to automatically reinvest the earned cash back into the stock. This creates a compounding effect that can add up rapidly.
Though barely noticeable, as the years pass there will be a significant amount of reinvestment, and thus, more money in your accounts.
Cash flow when you’re old and gray
If you’re investing for retirement age, you could have a huge number of shares in your portfolio that generate dividends regularly. Not only does this provide value in ownership of the stock, but a consistent payment that doesn’t require you to sell off any of your hoard.
If you start investing now and reinvest your regular dividends payments, you could have large cash flow when you’re older while maintaining all of the stocks you’ve bought over the years.
How Do You Invest in Dividend Stocks?
Start small! A great way to begin is to use one of the several available apps on your phone to start putting back meager amounts of money into the stock market.
Easy money
As a new investor, look for mutual funds or exchange-traded funds (ETF’s) that are centered around dividends. These options take most of the intense research out of investing in individual companies.
As an added bonus, investing in a mutual fund or ETF allows you to maintain a more diverse portfolio. If one stock tanks, you won’t feel it as hard. Don’t put all your eggs into one basket!
Double-check this one
When choosing an investment platform, be sure they offer Dividend Reinvestment! Many platforms offer this service, but there are ugly ducklings in the investment world that may not. When building a dividend-focused portfolio, the reinvestment is vital!
Although a dividend portfolio may take years before the prevalent benefits start showing, making money by simply owning a share in a company is too good of an offer to pass up.
“ Someone’s sitting in the shade today because someone planted a tree a long time ago.” — Warren Buffet
