One of the many aims an investor has is to make money from dividends. Most people would have heard about dividends, but are not sure how they work.
This article gives a quick look into how dividends work and how you can create a sustainable portfolio that pays you regularly.
How Do I Make Money from Dividend Stocks?
The short answer is to invest in a company that earns a profit. Duh.
Before dividends are decided upon, the management of a company would have to decide on the following:
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- How much of their profits should be reinvested in company growth
- How much to be used to clear debt
- How much to be used to buy back stock
Ideally, investors should be looking for companies with a good chance of increasing the dividend each year. By investing in these companies, you would be able to grow your cash flow as the company’s sales and profits grow, so it’s believed.
If done correctly, the net worth and household income of a dividend investor will grow and expand. Their cash flow from investments would also increase with time.
Important Things to Consider When Trying Selecting Dividend Stocks
- The stock’s dividend yield at the time of purchase.
- The rate of a company’s profit growth, which may be used to project increases in the future dividend.
- The health of company’s balance sheet. If you invest in a company that has a ton of debt, and declining sales, it will be risky no matter how large the dividends look.
- The company’s previous dividend distribution habits
We share more about how we screen for dividend stocks that are sustainable at our Dividend Investing Mastery Course.