Stocks are a common form of investment and most investors prefer it because they can result in dividends. Dividends are payments companies give to investors who buy their shares. Forbes compares them to the interest earned from a savings account. The amount you earn from these stocks may also vary. For example, if you buy a share worth $100 that has an annual yield of 5%, you will end up with a $5 dividend. Of course, this depends on the investment terms and conditions. Having these kinds of investments also allows you to have a more varied portfolio.
If you are looking for a way to earn dividends without spending too much, you can try your hand at exchange-traded funds (ETFs). Oleg Cher highlights how it is a great way to invest in multiple companies and bonds without increasing the risk. For example, if an ETF has shares of 50 companies, you will have a portion of stocks from all 50. If these companies release dividends, then you will receive them proportional to your number of shares. They might not be a lot now, but the more you invest, the higher the return. If you prefer to get more dividends, then it might be best to buy full company shares instead. But how do you know how much you can get from your stocks?
How to Calculate Dividends
Some companies disclose when and how much shareholders will receive. While the former is typically mentioned, there are times when the number of dividends will not be advertised, and it may be up to the shareholder to determine how much it will be. AskMoney states how this is not a difficult process at all but may take a bit of research.
First, you will need to know three things: retained earnings for both the start and end of the year and the annual net income. This can typically be found on the company’s public financial statements. After attaining the numbers, you need to subtract the beginning of the year’s earnings from the year-end earnings. Once you get the difference, subtract it from the company’s annual net income and you will be left with how much they pay in dividends. You can then divide this by the number of shares there are in the market to get an idea of how much you will be receiving.
How to Increase Your Dividend Income?
Invest in High Dividend Stocks
This is the easiest way to have high-paying dividends. Investment expert Wayne Duggan lists some stocks you should look into from corporations like AT&T, Chevron, IBM, and Verizon. These companies are known to have high-interest rates for shareholders and can be great as a short-term investment. The downside is that the price might be more expensive than in other companies because a lot of investors want to purchase these specific stocks. This is one aspect that cannot be overlooked. But despite that, it comes with a guarantee that your money is safe and can grow over time.
Reinvest Your Dividends
If you don’t want to buy expensive shares, another way you can grow your dividend income is by reinvesting your earnings to buy more shares. The payout is dictated by how many stocks you own from a company, so having more shares yields higher dividends. Finance journalist Rebecca Lake notes that you can do this by creating a Dividend Reinvestment Plan (DRIP). Most brokers offer this as it makes buying more stocks easier with fewer transaction fees. Over time, reinvestment can help you grow your income and your portfolio.
Avoid Switching Brokers
If you are just starting out, it’s very likely that you only have partial shares across different companies. When you want to move brokers, they might only accept full stocks, meaning you might have to start over if you do not own enough partials. Losing stocks you already own is very difficult and is detrimental to many investment plans. In addition, you will be charged a fee for transferring either by the broker you are leaving, transferring to, or both. The process can take a while as well, meaning if you are active in the market, you will not be able to trade for a while. Switching brokers can be a huge hassle, so unless it is a necessity, avoid doing so.
Stocks that have dividends are a great way to expand your investment portfolio while also earning a passive income. With these tips and the newest posts on CPA-Planner.com, you can get even more than you thought you could from your money.