how to make money with dividends
12:30, 04.03.2021 Dividend
how to make money with dividends
Investors aim to multiply as well as preserve their savings by investing their funds in securities. In the case of stocks, you can make money in two ways: by making a profit on the price of an asset or by receiving dividends. The first method is very simple. In other words, you buy an asset at a low price and sell it at a premium. In the second case, there are some important details to consider. The topic of today’s article is how to make money with dividends. 주식 배당금 받는법
Contents
How to buy stocks to receive dividends
Pros and Cons: How much profit can you make?
An important indicator for dividend income
When should you buy stocks for dividends?
Monthly dividend stock purchase strategy
Which stocks should you buy to get the most returns?
How to buy stocks to receive dividends
By purchasing stock in a company, the investor becomes one of the co-owners of the company. They receive a share proportional to the number of securities purchased. Like other business owners, they are entitled to a return based on how much profit the business generates.
Dividends are part of the company’s net income and are distributed to shareholders in proportion to the number of shares they own. However, not all companies pay dividends to their investors on a regular basis.
Also, in order to boost their reputation and attract investors, some companies pay dividends even during periods of loss. For this purpose, an entity may use retained earnings or borrowed funds from previous years. Paintooth
Dividends paid depend on:
Corporate Dividend Policy
Decisions made by the board of directors
Voting results at the general meeting of shareholders
A dividend policy determines how returns are distributed to investors and what methods are used to do so. Anyone can see this in the Shareholders section of the company’s website. Information on the frequency of payments is also included here.
The board decides how much dividends will be paid out during the period. If the directors decide to use all the profits for the development of the company, the investors will not get any returns.
If the board decides to pay the dividend, it will be discussed at the general meeting of shareholders. Investors will only be able to receive dividends if the payment is approved by voting.
Pros and Cons: How much profit can you make?
A dividend strategy offers investors the following advantages and opportunities:
Conservative income can be obtained through the opportunity to generate stable cash flow by purchasing stocks of companies with different dividend payout periods.
Earn long-term income by investing in the securities of financially stable companies.
You can make money in a crisis situation. Share prices of companies that pay dividends in a downtrend are less affected by negative markets. Sometimes, even in a crisis, the price may go up. But this is not typical.
The dividend amount may increase in the future. As the company grows, the board may decide to increase the dividend paid. Many organizations regularly increase their dividends to investors. Some dividend aristocrats and kings periodically increase the amount of shareholder returns for 10, 25, and sometimes 50 consecutive years.
Reinvestment of financial returns can increase returns. By reinvesting dividends into new investments, investors can further increase their capital and cash flow.
The risk of loss during that period is negligible. However, the worst case scenario is that the company may not pay dividends. Also, don’t forget that businesses can go bankrupt.
Disadvantages of dividend strategy include:
Companies may not be earning enough profits to pay dividends on a regular basis. As a result, investors’ returns will be unstable.
It can reduce the investor’s capital. If the issuer cancels the dividend payment, the share price may decline. The amount of reinvested funds will also decrease.
Your capital may grow too slowly. Companies that distribute all profits among investors grow slower than companies that put specific funds into development. In general, even an additional 1% return on a stock can have a significant impact on the growth of a company’s capital.
An investor’s return depends on the interest rate. If the yield is high, you can make money from dividends. Here is the average dividend yield:
Worldwide – 3.23%
USA – 1.83%
Japan – 1.89%
Korea – 2.14%
China – 2.28%
Brazil – 2.8%
Germany – 2.98%
France – 3.06%
Taiwan – 3.80%
Italy – 4.09%
Spain – 4.15%
Australia – 4.43%
Russia – 6.23%
An important indicator for dividend income
We use the following indicators to evaluate your investment prospects:
Earnings Per Share (EPS). The entity publishes this indicator in its quarterly financial statements. This reflects the proportion of the company’s profits to all individual shares in its stock. An increase in earnings per share (EPS) numbers proves the effectiveness of your business. However, earnings per share (EPS) amounts may continue to improve even after the company cuts costs or sells assets.
Revenue. This indicator indicates whether a company is running its business correctly. An increase in sales proves that the company is making progress. However, if a company reinvests its profits in new markets, technologies, or expansion of business lines, there may be no surplus profit.
The ratio of the cost of an asset to its revenue in the reporting period (P/E; Price/Earning) for its projected profit (Price to Earning to Growth). It is calculated as the ratio of stock price to earnings (P/E)/G, where G(Growth) is an indicator of expected annual earnings. Reasonably, the PEG should be less than 1. If it is 2 or more, the asset appears to be overvalued.
The ratio of borrowed and self-financed companies. This indicator indicates the degree of financial stability of the issuer. Reliance on creditors makes businesses vulnerable. This is because loan terms can be tightened at any time, and bankruptcy or bankruptcy can be declared at any time. Ideally, this metric should have a value of 0.1. Anything above 0.5 may cause problems in the future.
Forecasts of company management. Stock prices often have a greater impact on this indicator than earnings and actual changes in earnings.
analyst forecasts. These forecasts aren’t perfect, but they can help you invest in companies you can trust.
dividend yield. It is the ratio of the annual dividend to the value of the dividend per share, expressed as a percentage. A high level of this indicator indicates a potential risk. For example, in the United States, a return of 5% or higher is considered high risk.
When should you buy stocks for dividends?
There are three options for buying stock:
This is before the company releases its annual financial statements and the board of directors decision on dividend payment. There is no time for the stock price to rise yet, and you can make a profit by buying the stock at a low price. However, investors will not receive any returns as there is a risk that the issuer will not make a profit that year. Moreover, the board may decide not to pay any dividends at all.
One day before the previous dividend date. You have to pay more for the stock, but in this case you are guaranteed to pay a dividend. The price will go up further for two reasons. 1) The price of a stock often rises on a daily basis until the previous dividend date. 2) The stock price will decrease by the amount of the next day’s dividend. This is called the dividend gap. So the stock price on the previous dividend date is slightly lower than the previous day.
On or after the previous dividend date. You can buy the stock at a lower price, but you will have to wait until the next payout season to receive the dividend.
Monthly dividend stock purchase strategy
Now let’s see how to make money with dividends. Even experienced investors often fail to detect the best moment to buy a stock. If you don’t want to wait for this moment to come, you need to use an “averaging” strategy. This strategy consists of buying stocks on a regular monthly basis, for example. It is important not to worry about price fluctuations at this point. If you buy the stock at a lower price now and later at a higher price, this will have the effect of “averaging” the value of the asset.
Which stocks should you buy to get the most returns?
The least risky asset is known as “blue chips”. These are securities of the most trusted companies. However, they do not always yield good returns, as the higher the risk, the higher the return on the investment.
Therefore, blue chip stocks are considered the best option to get the maximum dividend. The risk is high, but the return is good. When choosing stocks, you should be mindful of liquidity, volatility and the reputation of the issuer. The company must grow and generate stable profits.
To build a portfolio, you need to buy stocks from multiple issuers. Combining high-yield securities with reliable blue chips helps reduce risk while increasing investment efficiency.
To ensure a stable monthly income, you should buy stock in a company that pays a dividend every 30 days. There are only a handful of companies that receive monthly dividends. Alternatively, you can invest in assets from multiple issuers with different payment terms every quarter (many companies pay quarterly dividends). In this case, you need to diversify the company in such a way that dividends are paid out in alternating monthly payments.
Dividend returns are associated with certain risks that must be considered when constructing an investment portfolio. Before buying any stock, you should first evaluate the profitability and financial stability of the company. Investing in securities from multiple issuers can help reduce your risk and help you plan your revenue generation schedule. How much you can earn from dividends depends on your initial investment and systematic reinvestment.