I am a list kind of individual. I regularly carry a record of things I am working on to assist remain organized and productive. On the backside of the list I have my running watchlist of stocks I wish to check into.
It can be easier to drop the shares you are watching in an app and I’d do that for certain. However, a piece of paper might be more helpful as it is something that you can carry around in your pocket, handbag, backpack, or briefcase. It will serve as a reminder to be watching the market and also to explore the stocks you’ve written down. This is a really simple tool, but may be quite valuable as it will act as a reminder to be on the watch for possible organizations to look into.
KEY TAKEAWAY: The more shares you take a look at the greater your odds are to find great businesses.
ACTION STEP: Go grab a sheet of paper or scrap paper and compose the shares you are currently having a look at and place that newspaper by your bedside to have ready to catch in the morning.
Dividends are amazing and are a terrific way to build wealth over time. If need a reminder about what a dividend is that you can refer to chapter 4 on stock exchange lingo. Essentially, dividends permit you to get paid while getting paid. That’s to say, you get an excess sum of money for every share you have of a given stock whilst hopefully the inventory itself rises in price with time too. The business can decide to reduce their dividend, not pay as much or eliminate it all together, but usually that only happens under extreme conditions once the company has fallen on really hard times.
So four times per year you can either obtain an amount of money just deposited to your accounts or perhaps reinvested into the stock you have to purchase more with no excess money coming from your pocket.
- A dividend paying company is generally an indication of a financially healthy company (although not always!) .
- Dividends can be increased or diminished by the business at any time. They are usually raised when the organization is doing exceptionally well. Hence, dividends can be a great litmus test of the health of a corporation.
- Dividends can come in the shape of money or more stock. The former is more typical and is referred to as a cash dividend. The latter does occur occasionally and is referred to as a stock dividend.
- Dividends may vary in size. Some businesses pay a $.01 quarterly dividend, which means that you get $.04 extra cents annually per each share you have. Hence, if you have 100 shares, you will earn $4 extra dollars. So if you have 100 shares of Pepsi or Apple, you will get an additional $200 a year just for owning the stock. Now that seems like a much better deal.
- This will lead investors to purchase the stock to acquire a dividend paying stock available which then will send the share price back up. This happens all of the time so searching for good dividend paying firms whose share price has temporarily fallen can be a fantastic idea.
- You’re taxed on dividends also. They are still considered part of capital gains and so, incur tax liability. Luckily, dividends are taxed at the long term capital gains tax rate that’s lower than the ordinary income tax rate.
- A smaller company with a dividend may be good or bad sign. It’s good if the business is growing and they could afford to pay the dividend. It is bad if they offer you a dividend merely to get investors to purchase their stocks, but they are not growing and eventually will need to eliminate their dividend, sending the share price down.
- If a dividend is reduced or eliminated completely the stock’s share price generally falls significantly. Only in rare cases does cutting the dividend or decreasing it really send the stock higher.
- For this reason, you can check this amount and see if there’s a substantial amount there and gauge whether the business can afford to keep on paying it.
What the heck do dividends need to do with compound interest? Interest is the amount of money you are paid from buying a bond or other financial instrument which pays attention. But the identical mathematics of compounding can be implemented to reinvesting dividends and this is exactly what investors predict dividend compounding.
I will not get into the true formula here as it is possible to research that in case you want. To put it simply, you start off reinvesting your dividends which initially is just a little quantity of money. Then, every year after that, the numbers are worth strangely more than the preceding year. After a while, every year, the amount being reinvested is more than what you began with and all of a sudden, you have a bunch of cash you hardly even noticed growing. You can do it on your brokerage accounts, but some companies even have this as an option through the retirement plan their company offers Usually it’s known as a DRIP alternative where DRIP stands for Dividend Reinvestment Plan.
So what’s the lesson here? I would strongly suggest finding dividend paying stocks, possibly some that are cheaper than many others and also some that are pricier than others, and start purchasing them and reinvesting the dividends. You can easily set this up with your agent to automatically reinvest the dividends. Do note, you wish to purchase and hold these stocks to the long term, possibly forever or until you will need the money. If you hold it to the long term, all those dividends will compound and you have the potential to live partially from the dividends alone in retirement one day or perhaps use the dividends earlier.
KEY TAKEAWAY: Purchasing dividend stock and reinvesting those dividends over time will expand into a lot of money because of the mathematics of compounding.
ACTION STEP: If you have not already, go find 3 shares that pay a dividend that also vary in share price from under $10, $10-$50, then $50-$100. Figure out for every one of them how many shares you would have to purchase to have the dividend buy you one or more shares of this stock upon being reinvested. To determine if a stock pays a dividend just look it up online or in your broker’s site.