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Dividend Investing Supplements Passive Income

2010-03-08 04:00
I 8217;ve written before about the various passive income streams available, but up until now I have largely ignored the concept of dividend investing. That was until the recession caused interest rates to drop to levels that don 8217;t even keep pace with inflation. As I searched for higher yields, I was introduced to the concept of dividend investing. A Quick Introduction to Dividends If you are not a stock investor, or regularly dig into your mutual fund statements, you are probably like me and are unfamiliar with the concept of dividends. Basically, a dividend is a cash payout by a company to its to stockholders. Companies that raise a lot of cash, and are fairly stable (meaning not growing rapidly or in financial trouble), reward stockholders by returning a sum of cash to them on a per share basis, usually in quarterly payments. Most companies raise or lower their dividend after quarterly earnings results are released. A handful of companies have long histories of increasing dividends over time, and now offer a healthy dividend yield. Where to Find the Best Dividend Stocks AT T often appears on lists of best stocks to own for dividend investors. They have a long track record of paying dividends. In fact, they have increased their quarterly dividend for 26 consecutive years. While there is no such thing as a sure thing, this kind of long track record is what I 8217;ll look for when selecting single stocks for our dividend portfolio. How to Calculate a Stock 8217;s Dividend Yield AT T (T) last declared a quarterly dividend of $0.42 per share, or $1.68 annually, in December 2009.В At the time of this writing, their stock price is 24.86 per share. Dividing the annual dividend dollar amount by the current share price provides the annual dividend yield of 6.75 . Not too shabby, considering most online savings accounts are yielding around 1.30 . AT T Pays for My Netflix Membership That sounds a little strange, so let me explain how this all works. AT T doesn 8217;t really pay for my Netflix membership, but the dividends I receive from AT T stock alone cover that expense. That 8217;s the way I look at dividend investing. Each time I add to my portfolio, and increase the amount I receive in dividends, it covers another expense. One day, it is not unthinkable that dividends alone could cover all of our basic living expenses. I recently signed up for an online brokerage account and purchased 80 shares of AT T to begin my dividend portfolio. Every three months, AT T will return a dividend of $33.60 ($0.42 per share dividend x 80 shares). That works out to about $11.20 a month. After taxes, that is just enough to cover my $9.62 monthly Netflix bill. As long as AT T continues to pay the dividend (and Netflix keeps its price steady) I 8217;ll have our movies-at-home budget category covered. Dividend Investing for Early Retirement Last year, I wrote about the concept of an early retirement freedom chart to track passive income, active income and monthly...
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