Make money with dividend stocks
When it comes to making a little money online, I believe one of the best ways to do that is by investing some of your hard-earned money in dividend stocks. The biggest mistake people make is by leaving their money in a savings account earning 0.5% interest and not taking advantage of what the market has to offer. Dividend stocks can provide you with a higher earning potential. Be aware that investing in any kind of stocks involves risks, do not invest with money that you do not have, although some will argue the potential benefits of borrowing money to invest but that’s a different story.
What are dividends?
In case you’re new to this, dividends are earnings that a company rewards its shareholders at the end of every quarter, or every month which I personally prefer because you can get constant cash flow. Who would want to wait 2 to 3 months for payouts? Earnings are calculated by #of shares times the payout rate. For example, let’s say you have 200 shares and the payout rate for each of those shares is $0.30. Your payout for each month will be $60.
Want to get started?
- Find a reputable discount broker with low commissions(very important) like Scottrade which I have. They have a $7 per transaction which I think is pretty cheap compare to most others.
- Fund your account. Scottrade deposit is instant so you don’t have to wait days for your fund to clear. Plus, they have local branches where you can go to if you really need extra help.
- RESEARCH and RESEARCH. Always do your due diligent before making your final decision. I use Yahoo Finance to find the stocks I like.
- Find “cheap stocks” with low payout ratios. You don’t want to buy one that’s more than 50% because then the company is paying out too much and may be unstable in the future. Also, find companies with the longest history of dividend payouts because they are most stable.
Should you go for the highest paying dividend stocks?
I understand the temptation to buy the highest paying dividend stocks out there, but you must understand the very high risk that’s involve here. Take Apollo Investment Corporation(AINV) for example. It’s paying out at 17.65% while most of its peers are paying out at 3% to 5%. Don’t you think there’s something wrong with this picture? If they are paying out more than they’re making, this is a sign to stay away. I’m not saying that these stocks don’t have a place in your portfolio, I’m saying to be careful when dealing with high paying dividends.
How much money are you willing to put in?
Consider this,
- Transaction fees alone can really add up if you trade often and in small amounts. I recommend at least $1000 for each trade that you make.
- Never put all you money into one stock because you never know if that company will be out of business and you will be out of money.
- I would recommend at least $5000 be invested when starting out and put $1000 into 5 stocks each. Therefore, just add $1000 each month into one of your five stocks until you feel more comfortable into buying more than 5.
- Again, do not invest with money you don’t have. Especially when you are in debt, focus on paying off those debts first before you venture into this.
- Don’t let your emotions take over. Do not panic when stocks are falling, this is the perfect opportunity to get in and buy.
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16 Responses to Make money with dividend stocks
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We are big fans of dividends. They are nice bonus that you can reinvest for more profit. We tend to work the dividend index funds the most.
I am working to add more dividend stocks to my portfolio since I think economic growth will continue to be hampered for years to come.
As I am close to retirement, I am starting to add more dividend stocks and funds to my portfolio.
I currently have no dividend paying stocks in my portfolio. Mainly, because I do not have an investment vehicle which would shield me from taxes.
Ever thought about opening a Roth IRA?
In the UK you can invest this way out of the taxman’s reach in an ISA – Individual Savings Account. These have to be approved by the Inland Revenue as you can only have one of these accounts per year.
The amount you can invest each year over all accounts is limited currently to £10680 a year (about $16,000) although the ISA of course is cumulative so it is particularly useful for young savers, which was the intention when they were introduced some 15 years ago (in a slightly different form). You can invest cash up to half that amount but there is little point these days but any cash that you have in the account can at least be stored for later investments. Capital, dividend and cash are free of tax, which makes it quite useful for higher rate taxpayers in particular.
Transaction and account maintenance costs can be quite a bit and the nasty sting in the tail for some accounts is that it costs money to close the account! So they are really not worth while for very small savers.
I guess dividend investment is the best way to go as long as the company doesn’t go under. As you say, spread your investments.
I have not been a big fan of dividend stocks but after reading your post, I am tempted to try it out. What are 5 stocks you recommend here? Thanks.
a few comes to mind are AOD and PHT but you should do your own research in figuring out the ones you like. check out thedividendguyblog.com, he has some useful info there too.
Thanks for the tip!
Big fan of dividend stocks. I’m filling my buandhold account with them and look forward to a nice income in 20 years
That’s what I’m trying to achieve too
Dividends are everyone’s rage right now… and while there are good reasons to hold them, as you note, if the capital on the position goes down, you’re better to hold a non-dividend player who goes up in value. At the end of the day, no matter how you do it, making money is what counts when investing. If you can do so, using dividends too, great! Cheers!
Dividend stocks on average outperform stocks that do not pay dividends. They are a great source of income for those that need it.
Just becareful, that the stocks that you select are not only based on current yield, the price may be dropping for reasons. Pick stocks that have above average fundamentals and you’ll do well
Dividend investing seems to be a popular topic on finance blogs these last few weeks, with good reason. I plan to begin investing in dividends this year, after more of our debt is paid off.
Thanks for the tips. This is one area I plan on concentrating on in 2012 and adding to my artillery of passive income.