Before going into details of how to make money by investing in dividend stocks, you need to understand what dividend is. A Dividend is the amount of profit a company pays to its shareholders. Companies usually pay profits to their shareholders by reinvesting it into the company’s expansion, share repurchases, or by debt reduction. For a shareholder, three dividend dates are important to remember. Firstly, the declaration of the stock date when the company announces dividend payment. Secondly, the date at which stockholders are entitled to the upcoming dividend. And thirdly, the date at which the dividend is paid to shareholders.
Making money by investing in dividend stocks is the easiest, simplest, and most reliable way of earning passive income. You will earn a decent amount of money in the form of dividend stocks by hardly doing anything. You can earn more than $1000 monthly by investing a little amount of money in buying shares. The amount of dividend payments varies from company to company and from year to year. Dividend profits are paid usually three times a year but sometimes four times too in case of extraordinary growth.
Many online brokers providing opportunities to buy stocks online such as M1 finance, Robinhood, eToro, Saxo Bank, Fidelity, and Webull, etc.
In this article, you will learn how to chose the best dividend stocks, which things should be considered while choosing a stock, and how much you can earn from stock.
How dividends create passive income?
A dividend is the profit of a company you get after purchasing their shares. The more shares you have the more profit you will get. But if you are investing in dividend stocks just for dividends you need to be careful of the ex-dividend date. It is the date at which stockholders are entitled to their dividends so purchasing stocks after that date will not make you entitled for the upcoming dividend.
Dividends create passive income in a way that once you have invested in dividend stocks, you do not need to work on anything. Dividend stock companies will pay you profits whenever they will announce it. You will get this dividend payment throughout your life if you are not withdrawing your money.
Why companies pay dividends?
Dividends are a sign of the financial stability of a company. Companies pay dividends for several reasons. These are:
- If a company wants to attract investors, it will pay high dividends to its shareholders.
- Companies may offer dividends to drive share prices up.
- Dividends are paid after the company clears all its expenses, so it pay dividends because as it matures it requires less capital to operate.
- Companies also pays special dividends if it has experienced an unexpected boost in the quarterly. It also pays special dividends if wants to change its financial structure.
- Small firms are likely to pay more dividends then large companies because they need their earnings to further invest in the business.
What investors invest in dividend stocks?
Creating money by purchasing dividend-paying stocks is one of the effortless ways to make passive income. Investors make passive income by investing in dividend stocks. They are making by doing nothing and getting money while sleeping, traveling, and dining. Investors usually prefer to buy dividend stocks due to the following reasons:
- Dividend payments can pay household bills.
- It makes you a company’s shareholder without doing absolutely nothing.
- These payments can be used to start a new business, traveling, or you can pay for charity.
- They can sell their shares at a higher price when they see a price hike.
Important things to watch before investing in dividend stocks:
Before investing in dividend stocks, you need to have a detailed analysis of everything you are going to deal with during the investment process. You need to watch out the following things:
- A complete analysis of companies offering dividend payments
- Research quality stocks having financial stability with low volatility
- Which is the high yield-dividend, or which is the most suitable stock you want to purchase
- Company’s debt-to-equity ratio. Do not invest in the companies have debt-equity ratio more than 2
- You can also project your future dividend based on the company’s rate of growth
- Invest in companies having a rate of growth between 10-15%. Avoid buying stocks of the firms having an annual growth rate more than that because either they would have a high debt-equity ratio or there is a manipulation in its financial statements.
- Avoid buying the highest dividend stocks because eventually, it can become a loss. Firms usually pay high dividend stock when it is not in a good condition and want investment in the business
- Be cautious of dividend traps before investing anywhere
How to buy dividends online?
After a thorough analysis of dividend brokers and the company’s financial positions, the next step is how to buy dividends online. Follow the below steps to buy dividends online by investing in dividend stocks.
1. After a complete analysis, find a good online broker. Many brokers offer discounts on stock purchases so choose your broker wisely. M1 Finance is the free investing platform that allows you to build a portfolio and invest freely
2. After choosing your broker, open an investment account to start buying shares online.
3. Upload your money to buy shares online. You can also buy fractional shares
4. Find a decent quality stock you want to buy. It can be done by independent research, through news, or by analyzing companies’ annual reports
5. Once you have found out the stock you want to buy, decide how many shares you want to purchase. Click the buy option to purchase it
6. Now you are done with purchasing your share and it’s yours now. Review your share positions regularly
Buying dividend stocks by investing in dividend stocks is the simplest yet proved way to earn passive income. You can earn passively hardly doing anything. Many online websites and apps are providing this opportunity to buy shares online. But you need to be careful of the frauds in this industry. =