Many investors look for dividend stocks to help build passive income in their portfolios. In this article, we’ll briefly explain what dividends are and how to know what is a good dividend yield and then go over the top 5 dividend stocks to hold in your portfolio to give you the best yield for monthly income. Quick Disclaimer: This is not to be considered as investment advice this is for educational purposes only.
What Are Dividends? Dividends are a form of distribution payment that companies offer to their shareholders in the form of a percentage of earnings that they have made. These payments occur on a regular basis throughout the year and can be used to help investors monitor the company’s performance in relation to their shareholdings. Dividend yield is the measure of a company’s stock that is paid out in dividends over a specific period of time. The key to calculating this figure is to take the dividend and divide it by the stock price in order to get a percentage. This percentage can then be multiplied by 100 to get the yield. A high dividend yield is a good indication of a strong company. For example, a company with a stock price of $100 and a dividend of $1 per share will have a dividend yield of 10%. Everything that glitters is not gold, however, because some REITs (Real Estate Investment Trusts) have high yields but their stock price has fallen consistently over the years. The key is to find companies that have maintained their dividend payout consistently for a number of years AND their stock value has not decreased over those years. Ideally, you want a company whose stock price has increased along WITH its dividend payout. Now that you know what dividends are can you guess which stocks we have in our portfolio? If you’ve been investing for a while you might be able to tell which ones they are. I’ll give you a few hints and let’s see if you are right at the end.
1. A man named Sam from Arkansas
2. The same name twice
3. If you’ve put on some weight
4. If ducks could talk
5. It doesn’t fall far
What’s Our Goal With This Portfolio? Our goal is to not just look for stocks with a high dividend yield but to look for a basket of stocks that give you the right amount of growth and stability that will help your account grow while at the same time generating monthly cash flow. The reason we are looking for monthly cash flow is because of the velocity of compounding. Simply put, the faster you make money, the more your money will grow fast.
What is Compounding? Compounding is one of the cornerstones of investing. Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” When you reinvest your earnings such as dividends into an asset, it will cause it to grow over time at a higher rate. You can also think of compound interest as earning money from your existing investments. Investing a lot of money in the beginning and letting it grow over time should be your main strategy because the investment will get earnings from both its initial principal and accumulated earnings from previous periods. The way that compounding works is that the interest accumulates, unlike linear growth where you only collect on the original principle each time. One of the most common examples of compounding is the Penny Doubled question. The question is, “What would you rather have? A penny that doubles every day for 30 days or $1 million dollars?” Many people will answer $1 million dollars but if you do the math. A penny doubled every day for 30 days comes out to $5,368,709 dollars and 12 cents. As you can see compounding is a very powerful thing. Can you guess which stocks we have in our portfolio? Well, here we go…
Building the Portfolio Since most dividend-paying stocks do not pay monthly we have to select the stocks for this portfolio based on the timing of their dividend distributions. Some pay yearly, some pay quarterly, and a rare few pay monthly. We have selected the following stocks for this portfolio based on their timing, dividend yield, and their ability to grow or maintain their value over time. Our first company is…
Walmart Walmart is a solid anchor for this portfolio. Everyone looks for lower prices and Walmart sells so much volume that they can afford to offer really low prices. Their dividend yield is 1.56% and the dividend payment happens quarterly every January, April, July, & October. That will give us income for the months that the other stocks do not pay dividends. Next up we have
Johnson & Johnson With all of the health concerns amid the pandemic and the potential for future outbreaks, Johnson and Johnson is a good long term growth investment and their dividend is sound. Their dividend yield is a hefty 2.55% and their payment happens quarterly as well, every March, June, September & December. Next in line is…
Chubb Another insurance pick, Chubb has consistently grown in value and looks to rise higher amid the casualty claims due to climate change. Their dividend yield is 1.53% and the dividend payment happens quarterly every January, April, July, & October. If you’re enjoying this video please like and subscribe. Our next company is…
Aflac We picked Aflac because the insurance industry is a stable industry and Aflac has had sustained growth even during the Pandemic. Their dividend yield is 2.37% and their payment happens quarterly as well, every March, June, September & December. Last but not least…
Apple We picked Apple because its growth is consistent as well as its dividend. Plus it is in the technology sector which gives the portfolio exposure to any future tech innovation growth. Their dividend yield is 0.70% and their payment happens quarterly as well, every February, May, August, and November. Even though their dividend is small compared to the other companies, their growth has more than made up for it. The ultimate goal is to grow your account and having Apple in your account will definitely do that. Their dividend is an added bonus.
Our Total Dividend Yield The total annual dividend yield percentage of this portfolio is8.71%.To make $1,000 a month it would take $140,000 invested across these assets to achieve that. Contrast that with the standard S&P 500 dividend yield which is around 2% and it would take $500,000 invested in the S&P 500 to make $1,000 a month.
So how did you do? Were you able to tell what companies were in our dividend stock portfolio from the previous hints? What do you think about this portfolio? Remember, this is not to be considered investment advice this is for educational purposes only.