I know the excitement that engulfs my Dad each time he receives a dividend warrant from some of the companies he has invested in. His excitement is simply magical. Can you imagine being paid for a job you did not do? Yes, that’s the way it feels.
Dividends can be summarized as a small slice of a company’s income which the company gives to their investors as their own share of the profits of the company. Dividends are declared and sent to investors from time to time. The regularity of the dividends depends on individual companies. While some companies give dividends annually, others pay on a more regular basis. In fact, monthly dividend stocks are now becoming more popular.
Before you decide to jump on the bandwagon and join the billions of people who have invested in stocks and are entitled to receive dividends, here are some things you need to know about dividends.
1. KNOW WHAT YOU WANT
There are some people whose main reason of investing in stocks is to earn some extra regular income through dividends. For investors like this investing in a company with a high dividend yield is your best bet. If the money you’ve invested in a company continues to grow then be sure that you can expect a regular income from your investment.
If, on the other hand, the dividend yield of the company is low, it means that you cannot expect a reasonable regular income and you may do well to opt out. For those who do not want to invest and expect immediate returns then it doesn’t matter what the dividend yield of the business is in the short run.
2. RE-INVEST YOUR DIVIDENDS.
Ok, here’s the thing. I’ve told you how my dad gets all excited on receiving his dividend warrant simply because it feels like money he didn’t work for. But I’ve also noticed that his excitement does not last, basically because his dividends are usually small and are exhausted after a short time.
While some investors receive small dividends, others receive mega dividends. The size of your dividend depends on the number of shares or investment you have in the company. So for people in my dad’s shoes, who will want to start receiving bigger dividends and making their excitement last longer, they need to increase their investment in the company.
The best way to grow your shares in the company is to opt for the reinvestment option of your dividends. Under this option, when dividends are declared, and other investors receive their dividends, none is sent to you. So what happens to your own dividend you may ask. Your dividends are used to purchase more shares which is equivalent to the amount of dividends that would have been sent to you. If this continues for a long period of time, be rest assured that your shares would have grown to a size that you won’t recognize.
3. THERE ARE NO GUARANTEES
As an investor, the earlier you realize that investments in stocks and dividends are susceptible to market forces and in this regard are certain to go up and down, the better for you. This is one fact every beginner must be aware of.
Moreover, some investors have certainly fared better than their counterparts have. One of the attributes of successful stock market investors is their ability to be patient and not panic despite what the markets say. These successful investors have a knack of recognizing future investments with great potentials, even if they are worthless today.
Although there are no guarantees when it comes to the stock market, you still have to play your little part to find out the history of the company or business you want to put your money in.
Every company that offers its shares to the public has been registered at the Securities and Exchange Commission or other company regulatory agencies. Companies are required to file some kind of monthly, quarterly or annual returns. All company information from financial details and stock transactions can be gotten and analyzed.
You will agree with me that a few investors are naturally good at locating companies with huge investment potential. Now except you are on that list of investment geniuses, you must seek expert advice before taking that investment leap.
5. INVEST LONG-TERM
One of the worst mistakes that the average investors make is that they want to start receiving dividends on their investments immediately.
Except you are privileged to have some kind of automated trading device that will help you read and analyze the market in real time, investing in a market with potential not considering its current economic value is your best bet.
Investment history has shown that those who were not afraid to take the risk of investing and sticking with dwindling businesses were able to reap huge profits when the market forces changed in their favor.
Another reason why long term investment in business is great is the issue of TAX. If you are an investor who would like to dash in and out of the stock market within a year, be sure that the tax man will demand a tax return of well over 30%. For investors who linger for much longer, their tax returns drops considerably.