If you are looking for a way to make some passive income, then dividend investing may be for you.
Dividend investing is when you buy a company’s stock that pays dividends. Many large companies have dividend paying stocks, so it’s not like it is a secret or very difficult to find one.
According to ABC News, approximately 40% of the stock market’s total returns since the year of 1930 have actually come from dividends. A dividend is when a company’s stock pays the investor money.
There are many things to think about if you decide to invest in dividend paying stocks.
A company can stop paying dividends.
This may cause an uproar among a company’s investors, but technically they can stop paying dividends if they choose to do so. Usually this does not happen though, because once a company has a reputation of paying dividends, it is hard for them to go back because they do not want to upset their investors.
Just like with anything related to the stock market, there is risk when you invest in a stock. It is not unheard of for a company to cut or completely eliminate their dividends when the company is not as good or their profits are not doing well.
In 2009, almost 60% of dividend paying stocks completely eliminated or cut their dividends to investors.
Why do people invest in dividend paying stocks?
Investors take part in dividend paying stocks because it can bring them income for years to come. All they have to do is buy a stock that pays dividends, and the rest of the leg work is pretty much done. Of course, you should analyze your options every now and then, and make sure that you are getting the best value of your dollar.
It does take a lot of money invested in dividends before you could actually live off of solely dividends, and this is not an option for many.
However, you could get to the point where it can help bring extra income in when you are older, especially if you reinvest the dividends that you receive in the beginning into more dividend paying stock.
Do you invest in dividend paying stocks? Why or why not?