Building your stock portfolio takes time and patience. One you’ve researched and read about the best options available to you, you can take advantage of a market that can make you money. With that said, here’s how to add income to your portfolio without sacrificing any growth.
Considering a Dividend
Simply put, a dividend is a portion of a company’s profit that’s paid to its shareholders. A company that’s profitable has several choices for what it can do with the money it earns. It can either put the cash back into the business by hiring more employees or buying new equipment, or put its money in the bank, or it can invest it. After all is said and done, it can finally pay it out to its shareholders in the form of a dividend.
Often, established companies like McDonald’s will pay dividends because they want to make their stocks as attractive to investors as possible. Smaller companies that are only starting to grow will instead invest back into the company. If you invest in a smaller company (also known as a growth company), don’t expect dividend payments right away. As the company grows, so will your payment.
If you don’t want to invest in an established company like McDonald’s, then there’s another options where you can receive a dividend. The most popular among these options are Real Estate Investment Trusts. By law, these trusts have to pay out at least 90 percent of their profits as dividends. Remember though, investing in this kind of trust is much like investing in real estate, where the market is volatile.
As an investor, you can buy stocks of growth companies with hopes that the company will be the next Apple or Google. Contrarily, you can play it safe and invest in an already established company that pays out a reasonable dividend. Either way, there’s plenty of options to seek out that’ll help you increase the income that’s in your portfolio.
Deciding on a Stock Option
Deciding which stocks you want to invest in is important. Fortunately, there are many tips and tools available to help you through the process. Before deciding, take these five rules into account:
- Diversify. Simply put, don’t put all of your eggs in one basket. When you buy stocks, spread your money around and invest in a variety of companies. Generally, you want to invest in at least five different companies. That way, if one company falters and its stock slumps, you have any investment options to lean on to make sure you receive income.
- Know the company. It’s easy to rush into a decision and buy the stocks recommended by various experts on various financial websites. Before pushing your money toward a company’s stock, research it and make sure you know the company you’re backing. Remember, you’re buying part of a company, so make sure you feel confident with your purchase.
- Know the dividend history. The best companies to invest in are those that have a long history of paying out dividends and increasing their value almost every year. Companies that have increased their dividend payment for at last 25 years are known as Dividend Aristocrats. It’s easy to find these companies by simply doing a search for them by this name.
- Don’t buy the highest yield. If you use a stock screening tool to search for the highest yielding companies on the market, don’t fall into the trap of choosing the first five that show up on the list. Don’t forget to take a company’s stability into account, making sure it has a sold stock price.
- Buy and hold. Over time, as your dividends are reinvested on your behalf back into the stock you bought, you’ll own more shares of it. More shares means that you’ll receive higher dividend payments since you’re being paid a specific amount for each share. Eventually, with patience and time, you’ll earn a nice nest egg of income. When you retire, you can live off the dividend payments instead of reinvesting them again.
Buying Stock Options
Before buying your stock options, do a little last-minute research to make sure you’re ready to invest. Whether you’re looking at equity-indexed annuity guarantees pros and cons or considering dividend stock options, the possibility to add income to your portfolio is there if you know which stocks to choose and how much to invest in them. You can either open a brokerage account with companies like Fidelity, Vanguard, or eTrade. These companies have minimum investment requirements and charge you a fee per trade.
Before jumping into the water, make sure you’ve planned and prepared for what to expect. The stock market is full of sharks, so be sure you know what you’re getting yourself into beforehand. With a little patience and diligence, you can add income to your portfolio in no time.
About the Author: Author Jane is a freelance writer who loves to write about anything from tech to mommy stuff. She is featured in many blogs as a guest writer, and can write with authority on any niche or subject.