Saturday, November 09, 2019

The Power of Dividend Paying Stocks

        This post is a continuation of the $50 a month stock challenge I started October 14, 2019.  Click on, "No Commission Stock Trades", on the right side of the page to read from the start. 

     There are more strategies for making money in the stock market  than I can begin to explain but IMHO, using dividend paying stocks is one of the safest and easiest to understand for the beginner trader.

     We will concentrate our focus on "quarterly paying" dividend stocks. Quarterly means they pay their dividend 4 times a year (quarterly).  When you see a stock paying 4% yield, that is their yearly percentage yield. A stock that pays a 4% yearly dividend yield will pay 1% quarterly.

     Quarterly means, about every 90 days (365/4 = 91.25 days, but you get the picture). Lets use an example of a $48 stock paying 4%.

     $48.00 x 4% = $1.92 dividend yearly payout

     $1.92 / 4 = $0.48 quarterly (every 90 days)

     Lets say its pays
   Jan 9 = $0.48
   Apr 9 = $0.48
   Jul 9  = $0.48
   Oct 9 = $0.48

     Lets assume we buy the stock 7 days ahead of the $0.48 quarterly dividend with the idea the stock will increase (stocks usually increase the dividend payout amount because the buyer knows the dividend is coming). Make our $0.48 in stock appreciation or in dividend payout.

     OK, the stock price drops and we can't sell it and just collect the $0.48. We can now sell the stock at a $0.48 loss and still break even as we have collected that in dividend, or wait for it to recover. Remember while waiting you are getting payed 4% annual yield payed quaterly. 

     Hold a non-dividend paying stock and the only way to make money is sell at a profit. Should you have to hold the stock 97 days (bought 7 days before Jan 9 dividend and the 90 days until Apr 9 dividend) and you have now collected Jan 9 (1%) and Apr 9 (1%) dividends.

     In just 97 days you have collected 1/2 of the annual payout or 2%.

     4% dividend paying stocks or above is where I like to put my money because it sure beats a saving account.

Disclaimer, I am not a professional.



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