If you’d like to make money while not having to trade your time and expertise for a pay check, passive income might be for you. In fact, passive income is lucrative enough to enable you to retire early. You might want to consider investing in dividend companies in order to build up your passive dividend income. Dividends are a great form of passive income, tend to grow over time and are tax efficient. In fact investors are paid to do absolutely nothing!
What are dividends?
A dividend is a payment made from a company to its shareholders. The payment is made from the company’s profits and is usually a set percentage to be paid out to each shareholder on a quarterly basis. Many people choose to invest in dividend paying stocks as these stocks are generally offered by profitable companies. Dividend paying stock prices tend to increase over time. Typically, these well respected companies raise dividends – meaning that the investor is in a win, win situation. However, there is no guarantee and dividends could also potentially be cut or eliminated entirely. But companies with a long history of dividend payments have boards that know what will happen to their stock price if they do cut their dividend and work very hard to keep it growing.
Taking advice from experts before investing is always encouraged. There are specialist global market traders such as Commodity.com who can advise on the commodities market.
Dividends are also cost effective in terms of taxes. If you fall into the bottom couple income tax brackets, you won’t have to pay a dime extra in taxes if you received qualified dividends. This is of particular benefit to those that want to retire early with little income.
Research where to invest
Research carefully the best businesses in which to invest your money. Your aim is to invest in a business with strong, competitive advantages in the market and shareholder friendly policies.
The internet has enabled the process of purchasing stocks to become easier. There are numerous online stock brokers with easy to use trading platforms. Online stock brokers are more cost effective and charge lower fees for their services. This is much simpler compared to stock brokers of old, where you had to deal with individual stock brokers in person.
Invest in your first stock
Once you have researched and identified a business in which you would like to invest, it’s time to buy! Ensure that the valuation is affordable and truly reflects an attractive price.
There are different order types for buying stocks. As a beginner, it is probably best to start with a limit order. A limit order stipulates to your stock broker the price you are prepared to pay for stocks with an upper limit. The stock market changes rapidly, so by using a limit order you won’t pay more than you intended.
Create a portfolio
As you become more familiar with investing in dividends you may wish to create a dividend portfolio. In basic terms this means investing in a number of businesses rather than relying on the income from only one business. This will give a safety net if any of your stocks drop dramatically in value and gives you stability in your income. The negative side of having a larger portfolio means that you will pay more in stock broker fees while you are begining. This is why it is so important to find the best value for your money when researching stock brokers.
There is a plethora of information available on investing in dividends and it’s worth doing your research before buying your first stocks.