So you wanna grow your cash in the market without the stress or heartache that comes with investing.
Normally the stressfulness of it all comes when you don’t really know what to do. This usually is solved with just a bit of simple educating which relieves anxiety and allows you to jump in for some serious fun. And dividends are one of the best parts of investing.
What Are Dividends – The Key to Passive Income and Growth
What exactly is a dividend?
A dividend is a portion of company’s earnings that is returned to the investor in a cash pay out. The amount is announced by the company’s board of directors and is one of the only ways for investors to profit from the ownership of the stock without giving up their stake.
In other words, income in your pocket.
And an even simpler way to explain it – you get to rejoice in profit earning.
Why do companies give you dividends? Aside from the obvious answer – to keep investors happy, there’s usually a little more to it.
Normally companies who have reached and surpassed their growth phase and are now more of a value company start to offer a percentage of their profits to their investors. It is also a healthy sign that the company is doing well and profiting. And that it is a strong company.
What is a Dividend Yield and How it is Determined
Yield is how to measure the amount of dividend the company pays out. Basically it’s a ratio showing what a company pays out in dividends each year relative to its share price. The dividend yield is the return on investment for a stock.
Basically you want to get the most bang for your buck.
Here’s an example:
Two companies both paying $1 per share for dividend. Yet one company is $20 (5% yield) a share and the other is $40 (2.5% yield) a share, you want to go with the one with the higher yield. Just make sure it is a reputable company with high potential.
The rule of thumb anything over 3% which is inflation is a good income investment. The higher the better.
But you don’t want to get caught up in too high of yield either, since higher reward always includes higher risk.
What to do with Your Dividends
1. Take the money and enjoy it
2. DRIP – Dividend Re-Investment Plan – you can tell your broker instead of putting the money in your account, to simply start reinvesting it for you by purchasing portions of shares.
What the True Secret of Dividend Investing
But the most important thing about investing in good dividend stocks – longevity. Long term investing.
This is when you see the dividends grow. Plus, if it is a strong company, the growth may not be parabolic, but it will be steady and fun.
The Trader Chick’s Silver Nuggets and Recommendations – Many companies offer dividends. The best, safest, and less risky way to start are: Dividend Aristocrats companies that have been paying dividends and raising them for over 25 years. Also companies that have been doing this for over ten years are great choices.
Before committing, do your homework. Fall in love with the company and then invest.
Marina 'The Trader Chick' Villatoro