Are you working a full time job right now? You have extra cash sitting in your bank account and you have no idea what to do with them. Moreover, you would not have time to manage your investment as well. To be honest, in today’s low rate, there’s not going to be any added value to your money in the bank. Some could even argue that the money would depreciate over time due to inflation. A lot of working labor tend to distribute part of salaries into some kind of retirement saving plans. This is one way to invest your spare cash.
Today, we’d like to introduce you another option you could consider to use your salary on. It is to invest in dividend growth stocks. What’s a dividend stock? Some companies reward their shareholders by distributing dividend( money ) back to them. Depends on the number of shares that you have, you would receive an amount of money accordingly. For example, you have 1000 shares of ABC company. The company decides to pay $.50 per share as dividend payment quarterly. As a result, you would receive $(1000*.50 = $500) every three months. Most of companies distribute dividend quarterly. However, there are tons of companies that are paying dividend back to their shareholders, not all of them are worth to be invested in. We would recommend to put your focus on companies that are fundamentally and financially stable with growth potential. You can think about like, ” does this company perform well historically?” ” Do I see them running still in 50 years?”. ” do they have a consistent dividend payments history?” It’s safer to invest in companies that you know you don’t need to worry about chance of bankruptcy and things of that nature in foreseeable future. Dividend investing could provide you with a consistent stream of cash flow. At first, you may not see a massive return of your investment right away. However, we are looking at the big picture which is long term growth. You could reinvest your dividend payments back to the company. The compounding effect would vastly increase your wealth in 15, 20 years. Some tips to select company(personal opinion):
P/E ratio not too high nor too low (5 to 35 is a good range)
Dividend Yield: 2.5 to 10
Do not put a lump sum investment in at once. (Try average in over time)
Share price would fluctuate ( stay true to your strategic theme)
Moreover, you may see some companies pay dividend monthly. Please beware that these companies may carry higher risk because they may use debt to pay out dividend. And their growth potential could be limited. We could talk about how to evaluate a company in future post.
In conclusion, dividend investing is one of the options you could choose to invest in. It’s not the only option. After all, it’s your own hard earn money. Don’t just listen to other people’s opinion. Please do your due diligence.
P.S. We have positions in MMM. KMB is on our watch list.