Investing in stocks as a long term investment can be beneficial especially to the people who are planning for their retirement. There is something you need to understand, earning money from the stocks depends highly on the type of stocks that you have invested in. Most of the stocks have dividends but the difference is the frequency of the dividend payment. There are those stocks that pay the dividends on a quarterly or yearly basis. The best stocks are the ones that pay monthly dividends. With the monthly dividends it is easy for you to plan your retirement. Before you can venture into the business of buying of dividend stocks, you need to understand what dividends are and how they work.
How Can Dividends Provide a Monthly Income?
Dividends are payouts or cash payments from the company’s earnings. The dividends are basically company profits that are shared among the shareholders. They represent a small percentage of the total profits and they are usually paid in cash. As mentioned above, most of the companies pay the dividends on a quarterly basis while some pay annually however there are those that pay monthly dividends you will just have to find them. Depending on the type of stock you invested in, your dividends can be calculated on a fixed rate or a variable rate. Keep in mind that companies are not obligated to pay the stocks. They do however, pay the preferred shareholders regularly unless the company is experiencing financial crisis.
How Do Dividends Work?
Dividends are paid by the company after the board of directors has approved the payment. There are four important dates when it comes to dividends. There is the declaration date which is the date that the Board of Directors announces their intent of paying dividends. After the Board of Directors announcement the company then declares a liability on their books. It is on this same date that the Board of Directors announces the date of record and the payment date. The date of record is basically the day that the company sets to determine who their shareholders are. The other important date is the Ex-dividend date which is the date that determines the shareholders who are receiving the dividends. For you to receive any dividend you will be required to have bought the shares before the Ex-dividend date. The last date is the payment date which is the date that the dividends will be paid to the shareholders.
Understanding The Types Of Dividend Stocks
Before you buy the stocks you have to know the different types of stocks that are out there. There are three types of dividend stocks; low-yielding, medium-yielding and high-yielding stocks.
- The low yielding stocks are usually the stocks that yield less than the average yield, 2% or lower. These stocks are very unlikely to survive during inflation. Investing in them may not give you monthly dividends.
- The medium yielding stocks; yield average yields and up to three percent points above the normal index yield. These stocks pay out between 30% and 50% of their profits in dividends. It is possible to get monthly dividends if you invest in companies that have these type of stocks
- High-yielding stocks are the stocks that yield higher than the average yield. These stocks are best for you if you are looking for a monthly income.
How To Find The Monthly Dividends Stocks
There are channels that you can use to look for the stocks that pay dividend stocks. You can use the local newspaper. There are specific local newspapers that list the different companies that are offering the stocks or you can check the weekly updates of the stocks in the business newspapers. You can use the online source; there are websites that are specifically designed to showcase the relevant stocks in the market.
Benefits Of Buying Them For Monthly Income
There are numerous benefits that you will get to enjoy. You will get to receive frequent payments. Most of the companies offer quarterly or yearly dividends, but if you buy the monthly stocks you will be receiving up to 8 payments of dividends in a year. However, remember the dividends you receive are determined by the number of shares you own. So if you want to get a substantial amount then you are advised to buy many shares. The other benefit is that with monthly dividends you can easily reinvest the dividends in other stocks which will increase the number of shares you own. You will subjected to less volatility when you buy the monthly dividend stocks as most of these companies that offer the dividends have diversified their assets hence they have a steady stream of income regardless of the economic status.
Tips On Buying Them Monthly
1. Company History
It is important that you look at the company history before you can buy their monthly stocks. Most companies that offer the monthly stocks have diversified their assets. It is important that you look carefully in to the places they have diversified their assets. Some of the companies tend to invest in high risk assets that may affect the company’s earnings in the long run. It is important also for you to check the history of the company in terms of the payment of the dividends. You should check the company’s history of buying back stocks from the shareholders because this will show that the company has good earnings.
2. Stability Of The Company
When you are looking to buy the monthly dividend stocks you should ensure that you research about the company’s presence in the world. Chances are if the company is internationally recognized it will be able to withstand the hard economic times. You should also check stability in terms of the product. The product or service that the company is offering should have a ready market. Check the company yield percentage before investing.
Things To Consider When Buying The Monthly Dividend Stocks
You will need to consider the tax implications. The dividends you receive are taxable at the rate of your personal tax. You can decide to get the dividends from your stocks directly so that you pay only the capital gains tax. You will need to consider the stock price stability of the company. If the stock is stable even in recession the stocks can recover quickly.