Investing in Dividend Stocks for Residual Income


One of the easiest ways to get started earning some residual income is investing in dividend stocks.  There is a little work to get started though.  You have to get a broker, find some stocks and then be patient as you wait for that quarterly or sometimes even annual dividend.

Choosing the right broker can have a great impact on your experience investing in any kind of stocks.  When you choose a broker make sure you understand what the costs involved are.  Most online brokers have relatively low fees.  Still make a quick assessment of how the fees might affect your returns.

For example if you have to pay an $8.00 transaction fee to purchase some stock but you are starting small with your dividend investing plan, the fees may eat up all of your potential income.  For example if you decided to start with just a $200.00 investment and could find a stock that paid 4%, it would take the whole year to earn that first $8.00.

Some people want to get started with even less.  For those of you like that you might consider something like Loyal3, who charges no fees for the transactions.  There are some pros and cons to Loyal3 that you can read about in our review of Loyal3 here. 

Once you’ve chosen a broker you’ll need to find some stocks to choose from that pay dividends.  There are hundreds to choose from.  Most of the online brokers have some sort of screening program to help you find stocks that pay dividends.  For those of you who want to do some research before opening a brokerage account you can do a stock screen for free on Yahoo Finance.

yahoo stock screener

With the Yahoo screener you can choose a myriad of options.  You might want to consult with your financial advisor here too. If you want to go it alone you can use the screener to narrow down your choices.  You can choose industries, market cap, dividend payout percentage, or even the index the stock belongs to.  When I first started investing in dividend paying stocks I stuck with companies I knew of, but however you choose them make sure you understand the company you are investing in.  Choosing the stock just because it has a high dividend payout percentage could lead to trouble.  Remember the risk to reward rule, with higher rewards comes more risk.  Don’t take unnecessary risks as you are getting started with your plan.

Once you have a broker and have chosen your stock take a look at the dividend payout history.  Is this one that pays once a year, once a quarter or monthly?  Depending on your goals you may want to revisit your list of stocks.  You should also decide ahead of time what your goals are.  Are you in a building phase?  Are you in a current income phase?  If you don’t need the funds you might consider reinvesting each time you receive a dividend.

Keep in mind that investing in dividend stocks involves risk.  The market is volatile and will fluctuate in price.  So will your investments.  It would be nice if they always just went up, but that’s not the case.  Be ready for your account to go up and down as you are collecting your dividends.  As far as a residual income idea, this is one of the easiest to get started.  You don’t even have to have a lot of cash to get going, but you can also only expect to earn around 3 to 4 percent with the current market conditions.

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