Dividend Paying Stocks Can Be One Of Your Easiest Source of Income
What are dividends? In this blog post, I give you the ins and outs of dividends investing; you will learn what dividends are and how they can make you one step closer to financial independence. Whether your goal is to retire early or to have some extra dough come in every quarter, dividend-paying stocks can help you get there.
Dividends can easily be another source of income stream to help accommodate your lifestyle. Having a supplemental income will make you feel more confident and less stressed because of the extra cash flow coming in. So, let’s talk dividends. First off, what are dividends?
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You Own A Teeny-Tiny Percentage Of A Company When You Buy Shares
When a company makes a profit/surplus, the extra cash flow can be used to either: reinvest into the company or to pay their shareholders. When the board of directors announces that they are going to pay dividends, the current investors who own shares of the company (shareholders) will be paid out $X per share that they hold.
Why? When you own a share of a company, you own a small percentage of it; that means you will receive a small piece of the earnings.
Keep in mind, however, that newer companies currently within their development stage are expecting to drastically grow within the near future: because of this, they may not pay a dividend until their growth stabilizes. Their intentions are to withhold their earnings to fund their business in order to continue growing.
What’s So Special About Dividends?
When it comes to stocks, there are two ways that you can profit from it: capital appreciation and dividends. You either make money from the increase in value of each share or you receive a cut of the company’s earnings. Luckily for you, investing in stocks will allow you to reap both of these benefits (if the company performs well).
The reason why I love dividends is because you are getting paid passively. You will receive dividends without any effort; as long as you continue to hold onto those shares. If you have patience and time then you can simply let those dividend payments come in, reinvest those dividends into more shares (DRIP program), and let it continue to reinvest over and over again (compound effect).
The Big Difference Between Capital Appreciation and Dividends
The downside of capital appreciation is that you can’t collect capital gains until you “cash out”. That means you can’t officially say you’ve profited from your investment until you’ve sold your shares.
Think of it this way: your shares are like gambling chips at a casino. Until you decide to cash out for money, your chips are worthless in the real world. Like gambling chips, stocks only hold monetary value the moment you decide to sell your shares to receive your cash.
On the other hand, you don’t need to sell your shares in order to realize dividend payments. As long as you keep the shares itself, the dividends will come in and you can withdraw the dividends instead.
What’s The Catch Of Dividends?
The downside of dividends is that you will need to hold huge amounts of shares in order to generate a lot of income. This can make a lot of people nervous and uneasy because a big chunk of their cash is invested in the stock market.
If we take a look at the NYSE:KO stocks, the dividend yield is 3.53%. This is never 100% accurate because the yield is susceptible to changes, but if we were to use this percentage and calculate how much you would need to have invested in order to make $1000 in a year, you would need $28,329. So if you’re looking to make a full-time income from dividend stocks then you will need a lot of dough invested.
$28,329 * 3.53% = $1000/year
Keep in mind that companies may not always pay a dividend. The board of directors will only announce dividend payments only when they believe the company is in a position to do so.
Dividend Stocks For Beginners Conclusion
We have reached the conclusion of What Are Dividends!
To summarize, dividends can be a good way for you to generate extra income. Although it can be an easy way to make some side income, it would require you to have a lot invested in order to make a decent living from dividend investing alone.
Do your proper research on companies who have steady growth and good earnings in order to mitigate the potential chance of companies not paying any dividends.
I hope you found this helpful and let me know down in the comment section below which stocks you’ve invested that has generated you a lot of dividends!