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?
- 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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