How can you create an additional income stream with minimal effort? Have you considered side hustles or gaining interest from a bank account? If so, take a moment to think about what you’re missing with stock market dividend investing.
The Truth About Side Hustles
Social media feeds are full of tips to create a side hustle. Most of these videos and articles promise that the hustle will be passive income. But, it’s typical to discover that there’s a huge investment of time, effort, and sometimes money needed to get the project underway and maintenance to keep the hustle afloat.
The Problem With Bank Savings Accounts
Frustrated with false promises of passive income, it’s tempting to turn to the tried-and-true method of squirreling away as much money as possible in the nearest bank savings account. That method can work as long as interest rates remain high. Unfortunately, interest rates have been low, sometimes historically low, over the past several years.
The Advantages of the Stock Market
However, the stock market has been providing a much easier approach to automated income for generations. It’s called dividend investing. If you’d like to receive money without having to learn to code, write, photograph, cook, sew, garden, or acquire any other skill, dividend investing may be for you.
What’s a Dividend?
A dividend is the portion of a company’s net profits that a shareholder receives. Typically, a company will issue payments four times per year, once during each quarter. Some organizations prefer to pay monthly or once or twice a year. The company’s board of directors determines the size of the dividend based on the financial condition of the business.
Why is a Dividend a Great Source of Passive Income?
You don’t have to do anything extra to receive a dividend. You simply have to own stock in the company. As long as you keep the stock, you’re eligible for a dividend each quarter. In other words, it’s as close to a set-it-and-forget-it second income as you can imagine.
There’s also an additional way that you earn money with dividend stocks. In addition to the consistent dividend payments, you also maintain possession of the stock. As the value of the company rises, so does your net worth.
The Basics of How You Earn Money With Dividends
Imagine you own 1,000 shares of a stock with a price of $5 per share. You’ve invested $5,000 and own the stock, which could eventually increase in value. But how much would you receive in dividend payments?
Let’s say the company will issue a dividend total of $0.20 per share this year. Multiply the dividend ($0.20) by the number of shares you own (1,000), and you get $200.
At first, you may think that $200 isn’t much. But keep in mind that it’s free. You don’t have to do anything extra to earn it. No late-night work or weekend grinding is required. You’re rewarded the $200 for investing in the company.
That $200 represents a 4% yield, which is more than the typical bank savings account offers. A 5% yield on the same investment would deliver $250, while a 6% yield promises $300.
How to Put Your Dividend Back to Work
One way to make the money continue to work for you is to reinvest it. Use the money the company gives you to purchase more of its stock.
In turn, that means the company will then pay you even more money, giving you still more opportunity to own more stock. It’s as if the company is giving you free money that earns more free money.
Let’s say, for year two, you reinvest the $200 you made on a 4% yield. That additional $200 would earn you another $8. You might not get excited over $8, but there’s more to consider.
Remember that you would now have a total of $5200 invested for 1,040 shares at $5 each. However, that’s only the case if your stock remains idle. Instead, the one thing about the stock market is things don’t stay idle for long.
If the stock market goes up, likely so will your stock. Your 1,040 shares could increase far beyond $5 per share in value.
And when share prices increase, a company’s board of directors is also more likely to increase the size of the dividend. Once again, you’d profit in two ways. Your stock would become more valuable while your dividend check would grow larger.
But what happens if the stock market dips? The value of your shares would also take a hit. But the good news is, unless the economy is experiencing severe distress, you’d likely still receive a dividend.
Who Pays Dividends?
Not every company pays dividends. The ones that do often make paying them a part of their heritage. For example, some companies pride themselves on having paid regular dividends for generations.
There’s a group of companies called the Dividend Achievers which have paid increasingly bigger dividends for a minimum of 10 consecutive years. Then there’s the Dividend Aristocrats, a group of larger companies. They’ve enlarged their dividends annually for at least the last 25 years.
Some types of businesses are more inclined to be dividend payers than others. Real estate trusts and utilities are two such businesses. Some firms pride themselves on paying steady dividends that their investors can rely upon. The yield may not be spectacular, but its regularity allows shareholders to predict the growth of their portfolios.
On the other hand, there are high flyers who distribute dividend yields at 5% and higher. When choosing where to invest, lean toward companies with a good overall track record. Don’t be tempted by the dividend yield alone.
Make sure the company receives good reviews from investment experts. After all, you want to do business with a company that will be around for a long time, consistently distributing worthwhile dividends.
How can you create an additional income stream with minimal effort? Have you considered side hustles or gaining interest from a bank account? If so, take a moment to think about what you’re missing with stock market dividend investing.
The Truth About Side Hustles
Social media feeds are full of tips to create a side hustle. Most of these videos and articles promise that the hustle will be passive income. But, it’s typical to discover that there’s a huge investment of time, effort, and sometimes money needed to get the project underway and maintenance to keep the hustle afloat.
The Problem With Bank Savings Accounts
Frustrated with false promises of passive income, it’s tempting to turn to the tried-and-true method of squirreling away as much money as possible in the nearest bank savings account. That method can work as long as interest rates remain high. Unfortunately, interest rates have been low, sometimes historically low, over the past several years.
The Advantages of the Stock Market
However, the stock market has been providing a much easier approach to automated income for generations. It’s called dividend investing. If you’d like to receive money without having to learn to code, write, photograph, cook, sew, garden, or acquire any other skill, dividend investing may be for you.
What’s a Dividend?
A dividend is the portion of a company’s net profits that a shareholder receives. Typically, a company will issue payments four times per year, once during each quarter. Some organizations prefer to pay monthly or once or twice a year. The company’s board of directors determines the size of the dividend based on the financial condition of the business.
Why is a Dividend a Great Source of Passive Income?
You don’t have to do anything extra to receive a dividend. You simply have to own stock in the company. As long as you keep the stock, you’re eligible for a dividend each quarter. In other words, it’s as close to a set-it-and-forget-it second income as you can imagine.
There’s also an additional way that you earn money with dividend stocks. In addition to the consistent dividend payments, you also maintain possession of the stock. As the value of the company rises, so does your net worth.
The Basics of How You Earn Money With Dividends
Imagine you own 1,000 shares of a stock with a price of $5 per share. You’ve invested $5,000 and own the stock, which could eventually increase in value. But how much would you receive in dividend payments?
Let’s say the company will issue a dividend total of $0.20 per share this year. Multiply the dividend ($0.20) by the number of shares you own (1,000), and you get $200.
At first, you may think that $200 isn’t much. But keep in mind that it’s free. You don’t have to do anything extra to earn it. No late-night work or weekend grinding is required. You’re rewarded the $200 for investing in the company.
That $200 represents a 4% yield, which is more than the typical bank savings account offers. A 5% yield on the same investment would deliver $250, while a 6% yield promises $300.
How to Put Your Dividend Back to Work
One way to make the money continue to work for you is to reinvest it. Use the money the company gives you to purchase more of its stock.
In turn, that means the company will then pay you even more money, giving you still more opportunity to own more stock. It’s as if the company is giving you free money that earns more free money.
Let’s say, for year two, you reinvest the $200 you made on a 4% yield. That additional $200 would earn you another $8. You might not get excited over $8, but there’s more to consider.
Remember that you would now have a total of $5200 invested for 1,040 shares at $5 each. However, that’s only the case if your stock remains idle. Instead, the one thing about the stock market is things don’t stay idle for long.
If the stock market goes up, likely so will your stock. Your 1,040 shares could increase far beyond $5 per share in value.
And when share prices increase, a company’s board of directors is also more likely to increase the size of the dividend. Once again, you’d profit in two ways. Your stock would become more valuable while your dividend check would grow larger.
But what happens if the stock market dips? The value of your shares would also take a hit. But the good news is, unless the economy is experiencing severe distress, you’d likely still receive a dividend.
Who Pays Dividends?
Not every company pays dividends. The ones that do often make paying them a part of their heritage. For example, some companies pride themselves on having paid regular dividends for generations.
There’s a group of companies called the Dividend Achievers which have paid increasingly bigger dividends for a minimum of 10 consecutive years. Then there’s the Dividend Aristocrats, a group of larger companies. They’ve enlarged their dividends annually for at least the last 25 years.
Some types of businesses are more inclined to be dividend payers than others. Real estate trusts and utilities are two such businesses. Some firms pride themselves on paying steady dividends that their investors can rely upon. The yield may not be spectacular, but its regularity allows shareholders to predict the growth of their portfolios.
On the other hand, there are high flyers who distribute dividend yields at 5% and higher. When choosing where to invest, lean toward companies with a good overall track record. Don’t be tempted by the dividend yield alone.
Make sure the company receives good reviews from investment experts. After all, you want to do business with a company that will be around for a long time, consistently distributing worthwhile dividends.
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