If you’re looking to receive a regular income from the stock market then identifying high dividend stocks is a good place to start. When you buy shares in companies, some of them reinvest their profits into their company, some of them buy back the shares they sold, and some of them pay dividends.
What Are Dividends?
Dividends are like interest payments on money invested. A customer who has an account in a bank is entitled to a certain amount of interest every year which is a percentage of their savings. Likewise, a lender who has lent a borrower his money will likely gain an interest on the loan when the debt is repaid. The two examples above exemplify what dividends are. Dividends are interest paid on shares by publicly traded companies usually on a quarterly basis. So if a share from Apple costs $30 with a $1 dividend, and you buy 100 shares, at the end of the first quarter you will have earned $1 * 100 = $100.
The total cost of the shares you bought is $30 * 100 = $3000, so you will have $3,100 at the end of the quarter. That’s a nice profit for just 3 months and 100 shares. Imagine what the profit would be if you bought 1000 shares. You can either spend your profit or save it while your current shares continue accruing profits for you or you can reinvest your profit by buying more shares.
The Importance Of Dividends In Purchasing Stocks
As you may have realized, the amount of dividend paid on a share determines how much you will earn throughout your investment period, so it pays to look for companies that pay a good dividend per share. If you are looking to receive a regular income from stocks you own then this is a great way to do it. You can estimate how profitable investing in a certain company will be by calculating their dividend yield. The dividend yield is the result of dividing the annual dividend by the current price of the stocks.
Choosing A Company To Buy Stocks From
Despite the fact that higher dividend stocks yield more money, it isn’t a wise idea to purchase stocks blindly or indiscriminately. The highest dividend yield companies are either trying to attract more investors or having problems which result in low stock prices. This is why the history of a company’s dividend payment is more telling about whether to invest in that company or not. Besides if a company paid a dividend last quarter, it doesn’t mean they have to do it the next quarter. They can choose not to pay, and there’s little you can do about it.
So the companies that have been paying out dividends regularly and consistently over the years, ideally the ones whose dividends have been rising, are the ones you should be seeking to buy stocks from if you want steady profits. These companies usually have a sound reputation, good financial health, have less debt, and are experiencing revenue growth. Also, their share prices and dividends are considerably less prone to volatility. Investing in these kinds of companies is the best way to minimize your losses in the long term. Look at how often a company has paid out dividends over a period of 5 years to get a good indication of how sound the business is.
Depending on your strategy, companies who pay regular dividends may be something that you’re looking for. If you have a long term strategy it may make more sense to look for companies who reinvest the profit in the business and focus on growth.