Investing: Dividends

Dividends, in short, are the money a company pays shareholders for buying shares from the profits they have made during their dividend period. For instance, for a company that pays an annual dividend, it would be out of the profit from that year. If a company pays out in March, June, September, and December, that is a quarterly dividend and the profits from each quarter would go to each respective dividend.

Dividends are what is known as passive income. This means all you need to do to get the money is be a loyal shareholder; all the effort you put in is actually purchasing the stock. This is what a lot of dividend investors like about companies with them. Potentially, you could live off what you make from dividends. Dividend stocks, in theory, could also eventually pay for themselves if you keep them long enough. Ways investors increase their gains from such stocks is the DRIP program, where all dividends made from a company are automatically reinvested into the company to get you more shares and therefore more dividends. You can keep this up and gain many shares over the course of several years if you keep investing and DRIPing.

However, when investing in dividend stocks, you want to make sure they have historically kept the same or increased their dividends. If they are decreasing or cutting, it means the company may not be doing so well and they have to cut some losses. It doesn’t matter as much, for dividend stocks, how the market is doing, but rather how the individual company has historically done.

I personally like to hold dividend stock because I am aiming to be able to live off passive income one day. For those who are willing to hold more stress and more volatility, regular stocks that you buy and sell for income may be the route for you. My goal is to be making $100 in dividends for the entire year of 2014 (not per month). I will share with you my portfolio on a monthly basis.

Which are your favorite dividend stocks? Do you like dividend stocks or more active investing?

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