Savings are awesome. Getting paid to save is even better. That’s why the idea of investing your savings and getting back a steady stream of cash as dividends sounds like a dream come true. And for many people, it is. Dividend-paying stocks can be an excellent way to generate additional income from your savings account. Unfortunately, most people think about dividends as something that blue-blooded aristocrats get from their trust fund or something you get from owning stock in something like Google or Coca-Cola. But actually, there are plenty of ways to invest in stocks and get a healthy dose of dividend-paying companies as part of your investment portfolio. Here are 10 strategies you can use to invest in stocks with a solid track record of paying dividends:
How To Make $500 A Month In Dividends
1. Dividend Aristocrats
A dividend-paying stock is a company that has been paying dividends for at least 25 years. This means they have consistently paid out a dividend to shareholders over the years, which has increased the value of your shares. Some of the best dividend-paying companies in the world include Coca-Cola, Procter & Gamble, and Johnson & Johnson.
2. Dividend Growth Stocks
Dividend growth stocks are companies that have increased their annual dividend payments for at least 20 years in a row. These companies tend to outperform the market because they pay dividends with profits gained from growing their business and are less likely to cut back on dividends when times get tough. They also tend to be more stable than other types of stocks because they’re not dependent on a single product or industry. A good example is Johnson & Johnson.
3. Dividend Paying Index Funds
These funds track an entire market, like the S&P 500, and are designed to match the performance of the entire market, not just one particular sector. They tend to be very low-cost because they’re index funds, which means you don’t pay any fees for investing in them. However, they don’t offer the same diversification as mutual funds, which typically invest in a selection of stocks from different companies.
4. Dividend Equivalent Stocks
These companies pay out a dividend equivalent to what the company would have paid out had it been publicly traded on a stock exchange. This is usually done by issuing preferred stock and paying dividends on that stock instead of cash dividends. This means that investors don’t get their money back as quickly as if their preferred stock was converted into cash but can still benefit from the growth of the company by receiving dividends every quarter or so. A great example is Johnson & Johnson.
5. Dividend Reinvestment Plans
A dividend reinvestment plan (DRIP) gives you the chance to reinvest dividends into more shares of the same stock. This means that instead of getting cash, you’re able to increase your ownership in a company by reinvesting dividends and growing your portfolio with minimal risk. A good example is Johnson & Johnson.
Exchange Traded Funds (Etf)
1. Large-Cap Growth Funds
These funds have demonstrated consistently above-average returns over the long term and are marketed to investors who don’t want to manage their investments. They tend to focus on large-cap stocks and are therefore very risky but offer superior upside potential compared to mutual funds. A good example is Johnson & Johnson.
2. Large-Cap Value Funds
These funds have also demonstrated above-average returns over long periods but focus on smaller companies and less risky investments than large-cap growth funds. A good example is Johnson & Johnson.
3. Mid-Cap Growth Funds
These funds are designed for investors who want to invest a portion of their portfolio in mid-cap companies, which tend to be lower risk than large caps, but still with strong growth potential that makes it possible for them to outperform the market over long periods. A good example is Johnson & Johnson.
4. Mid-Cap Value Funds
These funds are similar to mid-size growth funds but trade at a lower price than large-cap value funds, so they tend to be more appropriate for smaller investors and have less upside but much less downside risk than large-cap value funds. A good example is Johnson & Johnson.
5. Small-Cap Growth Funds
These funds have demonstrated consistently below-average returns over the long term and are marketed to investors who have a shallow understanding of investments. Their prices are usually similar to the mid-cap values of the group, but investors should expect less performance than would be expected in that category and should use caution if investing in small caps. A good example is Johnson & Johnson.
Real Estate Investment Trust (Reit)
1. Equity REITs
These funds invest in the equity portion of a real estate company. The ultimate goal of the funds is to help you buy a house for less than you could have on your own. These funds can include REITs, but sometimes just trade them as stocks.
2. Foreign REITs
These are REITs that invest overseas and often are designed for foreign investors who want exposure to U.S real estate without having to buy American companies, which means their market prices may not be well known in the United States when they start trading publicly and often trade at elevated prices relative to comparable domestic companies (at least initially). For example, Johnson & Johnson trades at roughly one-third of its 2005 price when it goes public in 2006.
3. Mortgage REITs
These funds invest in interest rate-sensitive mortgage loan products and can provide returns that are about a third higher than traditionally reported long-term rates, but are sensitive to interest rate changes and not as stable as fixed-income investments. A good example is Johnson & Johnson.
4. Municipal Bond Funds
These funds invest in the opposite of REITs, which often invest in non-interest-bearing assets (things like sports stadiums and industrial development). These funds generally purchase bonds that are backed by a specific tax (property tax or sales taxes) or have a series of tax payments attached to them.
5. Money Market Funds
These are low-risk, short-term investments that are similar to CDs but trade on the New York Stock Exchange and not the National Association of Securities Dealers Automated Quotation System (NASDAQ).
Mutual Funds
- Mutual funds are an excellent way to invest in stocks and get a healthy dose of dividend-paying companies. Mutual funds are essentially large baskets of stocks that span many different industries and sectors.
- Mutual funds are an excellent way to invest in stocks and get a healthy dose of dividend-paying companies. Mutual funds are essentially large baskets of stocks that span many different industries and sectors. When you buy shares in a mutual fund, you’re buying a small piece of each of the underlying stocks in the fund.
- Almost all major investment houses now offer mutual funds that specialize in dividend-paying stocks. These funds are excellent for investors who are just starting, or for people who want to own a wide variety of stocks but don’t have time to research individual stocks.
- In addition to investing in stocks, mutual funds can also be used to invest in bonds. Just like with stocks, you’re buying a small piece of each of the underlying bonds in the fund. And just like with stocks, you’ll receive some interest payments on your investment.
- As those stocks pay out dividends, the fund manager distributes the dividends to the fund’s shareholders. Almost all major investment houses now offer mutual funds that specialize in dividend-paying stocks. These funds are excellent for investors who are just starting, or for people who want to own a wide variety of stocks but don’t have time to research individual stocks.
Summary
All in all, there are a lot of different ways to invest in stocks and get a healthy stream of dividend payments from your investment portfolio. Preferred stocks and REITs are excellent for getting a better return on your investment, but they don’t offer much in the way of growth. Preferred stocks mature when the company is acquired or goes public, so you’ll get paid out in full when that happens. Dividend-paying stocks are a great way to generate additional income from your savings account without having to put in a lot of work.
