If you’re thinking about investing in a particular stock, or just looking to get started and not too sure about what kind of stock to invest in, a stock that pays dividends may be the answer for you.
A dividend is a payment made to you, a shareholder, by the company that you bought shares from. Although you may not have bought your shares from the company itself, but instead from another shareholder, you may be eligible to collect a dividend. Collecting dividends are easy! You don’t need to sign up or register for them; they simply get transferred to you from that company you own!
Dividends can be paid monthly, quarterly (every 3 months), bi-annually (twice per year) or even annually. The amount you can collect depends on the number of shares that you own as a shareholder. For example, RBC pays a quarterly dividend. According to publicly available information on RBC’s website, their last dividend was $0.83 per share. This means for every share you own you would get paid $0.83. It doesn’t sound like much, but these small dividend payments may be enough to cover your transactions fees, plus more if you hold on to them long enough. Additionally, by continuing to contribute to your investment on a consistent basis, that dividend payment will grow, which will add to your overall cash flow. Ideally, it would be great to invest enough money to be able to survive off of dividend payments. On a smaller scale but still sizeable, if you own enough shares you may qualify for a DRIP, which is a direct reinvestment plan. The idea here is to buy shares with the dividends collected.
Using a hypothetical situation, if someone has invested approximately $3,300 in the stock market within dividend paying stocks and exchange traded funds, they would have collected approximately $46 in dividends after one year. This number is based on an investment portfolio invested in the following stocks and exchange traded funds: 7 shares of RBC, 17 shares of VRE, 17 shares of CDZ, 46 shares of XSP and 10 shares of ZDJ. Before buying a stock or exchange traded fund, it would be smart to look at how often a dividend is paid and in what amount when making your informed decision.