A dividend is a distribution, to eligible shareholders, from corporate profits. The payments, the amount of the payments, the payment schedule, etc. vary from company to company and is determined by the board of directors.
Aside from some tax advantages (qualified dividends paid are taxed at rates lower than the ordinary income tax rate—0% to 20%), dividends are also valuable because they help mitigate some risk and increase profit. More money earned, is always a good thing. Even better news is that historically speaking, even during a recession, dividend stocks tend to show growth.
As mentioned above, the board of directors determines the payment schedule. Types of payment schedules include Annually, Semi-Annually, Quarterly, and Monthly; quarterly being the most common. Different companies have different quarterly structures and follow various methods of payouts. Experienced investors may pay attention to the Ex-Dividend Date (stocks purchased after this date are not eligible for the most recent round of dividends), and Announcement Date (the board of directors announces the next dividend). However, the most important date is the Payment Date - the day you receive your dividends.
The most common method of dividend payment is cash. Some companies may adopt a DRIP (Dividend Re-Investment Program) in which your dividends are automatically used to purchase fractional shares. Cash dividends are dispersed in various ways, depending on the platform, broker, or Investment Firm you use. When structured properly, you can use these quarterly dividend disbursements as a second income, or as a means to pay your bills. The methodology is structuring your portfolio, or portion of your portfolio in a manner similar to this:
- Stock A pays dividends in January, April, July, and October
- Stock B pays dividends in February, May, August, and November
- Stock C pays dividends in March, June, September, and December
This structure provides monthly, cash flow income, directly to your wallet. You can find payment schedules on the company’s websites, via your preferred trading platform, etc. Luckily, we’ve done the homework for you, so feel free to copy.
Stock A - ORCL Annual dividend yield of 1.83%. Annual dividend of $1.28/share - Quarterly dividend of $0.32/share
Stock B - CLX Annual dividend yield of 3.27%. Annual dividend of $4.64/share - Quarterly dividend of $1.16/share
Stock C - AWK Annual dividend yield of 1.76% Annual dividend of $2.62/share - Quarterly dividend of $0.66/share
Use ours or build your own, either way, now you have the tools and the strategy to turn stock ownership into monthly income. You can use a combination of multiple stocks to hit your monthly goals as well. Diversification is key, so try to hit various sectors, just as we did.
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