Earn Income from Stock Dividends

Dividend Investing can work very well as a retirement plan and as a way to build steady income. In today's article, I'll show you how to get started building your income with Dividend Investing.

First, start your savings.

Open a savings account that is separate from your other accounts. This will become your dividend investing feed. (I called my savings account "Dividend Investing Account".) Choose an account with a higher interest rate. These types of accounts usually limit how often you can withdraw money which is perfect for our purposes.

Put that money into the account as soon as you get it. If you have direct deposit, have a portion of each paycheck automatically deposited into the "Dividend Investing Savings Account". You can also set up an automatic monthly or weekly transfer from your main account to your Dividend Investing Account. Do this before you spend money on anything else - including bills. Don't pull money out of it. If you find that you don't have enough money to pay your bills, look for other ways to make money or cut expenses.

How much money should you have in your "Dividend Investing Account" before opening your trading account? You decide. It can be a few hundred dollars or much more. When I opened mine, I waited until I had $5,000. But, you can start with much less than that - or much more.

When you have reached your target, open your Stock Investing Portfolio. Keep investing money in the "Dividend Investing Savings Account". You'll be adding that money to your portfolio in a few months.

Choose your stocks.

Since your goal is to create an income for yourself, you want to look for stocks that pay dividends.

Both Yahoo and Google have great research tools. http://finance.yahoo.com/ or http://www.google.com/finance . I prefer google, but it's your choice. Both are great.

Buy stocks in companies that will pay good dividends in the long haul.

Let's look at BP. I go to http://www.google.com/finance and type "BP" in the search box. I click "Get quotes". Google serves me a page with a lot of information about BP. I need to look at all the information, but one thing I will be interested in is listed in the chart at the top of the page right next to the current quote. I want to see what the Div/yield is. For BP, it is currently .84/6.91

Dividend yield is a way to measure how much cash flow you are getting for each dollar invested. Investopedia uses this example: If two companies both pay annual dividends of $1 per share, but ABC company's stock is trading at $20 while XYZ company's stock is trading at $40, then ABC has a dividend yield of 5% while XYZ is only yielding 2.5%. Thus, assuming all other factors are equivalent, an investor looking to supplement his or her income would likely prefer ABC's stock over that of XYZ.

What I learn from my research is that every three months, BP is paying .84. If you owned 1000 shares of BP, every three months they would pay you $840.

Now, when you are just starting to build your portfolio, you will most likely want to choose to roll the dividends over rather than take the check. You can choose this option when you purchase the stock. Then every three months, when the dividend is paid, it automatically purchases more shares of the same stock for you. In ten or fifteen years (whenever you want to start getting checks) you will go back and choose to have the money sent to you rather than re-invested.

Choose at least ten different stocks. In my portfolio, I have two energy stocks, two service stocks, two technology stocks, one utility stock, and three basic materials stocks. You will want to choose your own stocks based on your thoughts. Don't trust me (or anyone else). Research and make your own decisions.

Pay particular attention to a company with a history of paying a consistently growing dividend and to companies that pay a consistent but steady dividend.

Opening your Stock Portfolio
Some online trading companies include:

To learn more about which stocks are the best buys, you can check Trading Solutions. It offers a free trial:


And, finally -
Books you might find useful:

How to Make Money in Stocks:A Winning System in Good Times and Bad $16.95

24 Essential Lessons for Investment Success: Learn the Most Important Investment Techniques from the Founder of Investor's Business Daily $10.95

The Battle for Investment Survival (Wiley Investment Classics) $19.95

Entries & Exits: Visits to 16 Trading Rooms (Wiley Trading) $95.00

Trade Your Way to Financial Freedom $34.95

Come Into My Trading Room: A Complete Guide to Trading $65.00

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