How to Get Rich with Dividends (Best Ways & Tips to Help You)

Yes, you can really get rich with dividends, if you know how and know what to do.

Thankfully reading this article reveals what to do and best tips to help you succeed in getting rich with dividends.

 

Why Try to Get Rich With Dividends?

If you have ever played the game of Monopoly, most likely you have drawn from the orange pile a take a chance card.

One of the cards that you may have drawn is where the tycoon is sitting back in an office chair, and you collect $50 because it says bank pays you a dividend of that amount.

Happily, you take the blue piece of Monopoly money.

When investing in stocks, there are a couple of ways that an investor can realize profit of that investment action.

One of the ways is that they see an increase in value for their stock and when that increases, there investment in the company increases proportionately in relationship to the number of stock shares of stock they own.

Another way, to share in a company’s profitability is by receiving dividends.

Investing is always a good way to have your money work for you.

Let us then understand little bit more the workings of dividends.

 

Non-Monetary Dividends

It is always good to get a return on one’s invested money.

It is important to remember that not all dividends are paid monetarily.

This is certainly the case if we have invested in our children and their education.

The dividends that we receive are not with a $ in front of them but the joy that we realize in successfully nurturing children in this world and through our influence and investment making them productive citizens of our society.

 

What Are Dividends?

When a corporation realizes profits on their company products, they are then able to share the wealth with their stakeholders.

A proportion of this profit is issued to the stakeholders of the company and this distribution is known as a dividend.

Most companies, if they realize a profit, distribute these dividends quarterly.

In most cases the company’s board of directors provides direction as to whether a dividend will be paid and when, if any, dividends will occur.

 

Importance of Dividends

The importance of dividends is a reflection of the businesses success which is critical in attracting other investors.

When investors or potential investors see the success of the business, they are willing to purchase shares, become stakeholders, and reap the rewards of the businesses’ earnings.

The other important aspect of dividends is that it is an encouragement to current investors to stay the course and possibly reinvest their dividends earned.

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How Dividends Are Distributed

Dividends can be distributed in a number of ways.

They can be paid out in cash to the shareholders which are done generally through a direct deposit to the shareholder’s bank account.

The other option for a shareholder to receive their dividend is to reinvest the issued dividends back into the company by purchasing further shares.

 

How Dividends Are Calculated

Generally, a company will announce the disbursement of dividends as directed by the board of directors.

Dividends are paid out for the year that the profits were earned.

However, they are not necessarily paid out in the same year that the dividend was declared.

The formula for determining a dividend is D=DPSxS. D equals dividend, DPS equal dividends per share and S stands for the number of shares you own.

Therefore, as an example, let us say that the DPS of XYZ company is $.75 and you own 1,000 shares.

In this case the total dividend that will be paid out to this individual would be .75 x 1000 or $750. $750 would be your annual dividend return.

 

Finding Companies

If interested in earning income through stock purchases and dividends, it is important to know what companies provide a return to their investors through dividends.

The best way to find out if dividends are offered is to go to the company’s website and find the link that bears the heading of the investor relation’s page.

On this page, the company will provide information regarding how they are listed on the various exchanges which could include NASDAQ or the New York Stock Exchange.

Also, on this link will be information about the company and the issuing of any dividends.

When it comes to dividends a bigger company is usually better as dividends are usually paid to stockholders of companies that are well-established.

By clicking here you will be directed to the investor/dividend page of Coca-Cola as an example.

 

Why Some Companies Don’t Offer Dividends

It is important to note that some companies do not offer dividends to their shareholders.

This could be for a variety of reasons.

One of those reasons is that companies, when experiencing considerable growth, use their profits to invest them back into the business to capitalize on that growth and expand the business.

This is a decision usually opted for by the board of directors because often they think that the reinvestment of profits will be a bigger payout down the road for their shareholders.

A major example of this decision was taken by Starbucks when they utilized all of their profits in expanding and capitalizing on their popularity.

Subsequently, in 2010, Starbucks announced that it would be paying its first dividend.

 

Types of Dividends

 

Cash Dividends

Out of all the types of dividends available to an investor, cash dividends are the most common type.

Generally, companies that issue a dividend will pay these dividends to the shareholder in cash.

Often, this cash is paid out to the brokerage account owned by the shareholder and then disbursed to the shareholder.

 

 

Stock Dividends

Some companies or corporations, rather than paying dividends out in cash, will still pay dividends.

However, these dividends are additional shares of the company stocks that are paid out to the investor.

 

Dividend Reinvestment Programs

This dividend reinvestment program or DRIPs is a program which offers investors the opportunity to reinvest any cash dividends back to the company.

This reinvestment of dividends can be through the purchase of additional shares, or the investor has the option of buying a percentage or fraction of the shares of the stock.

Additionally, DRIPs may be able to be purchased for a small fee or at a deep discount of the price per share of the stock.

 

Special Dividends

These dividends are paid out as if they were a normal dividend that is authorized by the board of directors.

Unlike the quarterly or annual dividends paid by the company these dividends are qualified as special which means they are non-recurring.

Often, these special dividends are distributed to shareholders from profits that have been amassed over a number of years and it has been determined by leadership that the company does not have any immediate need of these accumulated funds.

 

Preferred Dividends

There is a special category of stockholders who are referred to as preferred stockholders.

These stakeholders are defined as preferred because their investment in the company is defined more as investment or owning a bond, rather than owning stock.

Therefore, these particular stakeholders receive a return on their investment and this investment is usually fixed and not dependent upon the profitability of the company.

 

Tips to Help You Get Rich With Dividends

 

Research Current Companies

If considering the purchase of stock in a company that historically disperses dividends, it is important that you do your research.

This can be accomplished by going to the company’s website and determining what is the recent stock dividend that was dispersed to its shareholders.

This is a fairly decent indicator and measurement of the profits of the company, what dividends they are providing back to their stakeholders and their profitability, all things being equal, being able to continue those disbursement of dividends.

 

Company’s Growth Rate

Another consideration when looking to purchase stocks in order to take advantage of possible dividends is to research the rate of growth in the company’s profit.

This simply means that you track what the earnings of the company are over a specific time frame. They can be as many as 10 years or as little as the recent quarter.

If looking over a period of time, it is important also to determine if there were any anomalies or situations in which the company did not earn a profit or gained an unprecedented profit.

Those anomalies could be any changes in the stock market, events happening in the world that affected their profits, change in leadership, etc.

 

Balance Sheet

Another important financial document that an individual should study is the balance sheet of the company.

A balance sheet is simply a total of all of the balances of a company’s finances.

There are two sides to the balance sheet, assets and liabilities.

The subtracted difference between the two is the net worth of the company.

In doing one’s homework on the balance sheet there should be a positive balance or more assets than there are liabilities.

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Tax Laws

As with all things in the financial world it is not necessarily how much you make but how much you are able to keep.

One of the possible negative components as to why an individual does not keep more of their money is because of taxes.

Therefore, you want to keep your investments robust but not to the point where it escalates you into a higher tax bracket and in essence paying out more taxes.

 

Debt Ratio

The other consideration when selecting investment of companies to earn dividends is to be aware of the company’s debt ratio.

The debt ratio is a financial calculation that divides the total debts by the total assets.

Therefore, if a company has $4,000,000 in total assets and has one $1,000,000 in total liabilities the debt ratio would be 25%.

This is an indicator of the company’s assets that are financed through indebtedness.

The takeaway from the debt ratio is that companies that have a higher ratio are defined as highly leveraged.

A high or risky debt ratio is considered to be .6 or higher.

 

Making Money and Getting Rich With Dividends FAQs

 

What Is Considered as a Good Dividend Return?

A good dividend return is, on the average, a 4% to 6% return.

Therefore, as an example, if you own 100 shares of a stock at a value of $200 per share and received dividends paid per share from your investment company of $10.00 that would be a return of 5%.

The formula is the dividend divided by the value per share.

Specifically, $10/$200.

 

Is Having an Investment Portfolio Consisting of Companies That Pay Dividends a Good Strategy?

In actuality, it is one of the best ways to invest.

The reason being that it is an important way to invest and diversify one’s dollars by investing in companies that provide dividends.

In essence you are investing in companies that have a long history of being profitable.

Therefore, even though some may consider that investments from dividends may not be exciting, it is a critical way of achieving steady returns that are consistent and ongoing.

 

You Can Do It

With a little research on your part and reviewing certain financial documents from companies that have a long history of profitability, you can take advantage of dividends as part of your revenue stream.

Additionally, if uncomfortable with making these decisions on your own, engaging a personal financial investor or broker, an individual can utilize the expertise of these individuals.

Also, rather than investing in one particular company, an individual can spread their investment over a number of companies, ETFs, and still realize the gains from the various dispersed dividends from the different companies.

The other advantage of investing in ETF’s is that your portfolio becomes more diversified.

 

Conclusion

Whenever there is an investment of time, money, and energy, there is always an expectation.

That expectation is some sort of return on the sacrifices that these areas of investment represent.

Dividends can be paid monetarily or can be also realized in the success of others that we devote our resources towards and helping them achieve their success.

In either case, dividends are our reward