Dividend Investing, How Profitable is it?
Everybody wants to know how much can you make from dividend paying stocks. It depends, if the stock is an overall good investment then the amount you can make off of dividend stocks is greatly increased.
Of course investing in strong companies who’s stock is undervalued is a much more important aspect of long term investing, however even buying great companies means you are speculating. Whenever an investor buy a stock, no matter how much they believe it will go up, they are speculating. however by investing in dividend stocks you can at least get with some certainty a minimum return to expect from the market.
There are different ratios which help you to understand just how much you need in order to build the kind of income you need from the stock market. One such ratio the dividend yield ratio for example helps investors figure out how much they need to invest to get their desired income.
It takes the amount of dividends a stock pays off each year per share and dividends it by the price of the stock. So, if the dividend on a stock was $.80 in a year and the stock was priced at $10 the dividend yield is 8%. That means if you want to make $8,000 a year in dividend then you need to invest at least $100,000.
That is the most conservative way of deciding how much money you will need in order to make an income from the stock market but it is not the only way. Some other ratios such as the Gordon Growth Ratio get into dividends a little more and give an investor a more complex way of looking at investing in dividends.
But remember that there are other ways to make money from the stock market then dividends. Investing in fundamentally strong companies should be the first priority of anyone investing in the stock market, dividends are just an added benefit.
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