One of the basic fundamentals of good investing involves making money🤗 from dividend-paying stocks. Too often, however, new investors don't fully understand dividends, how dividends work, and how dividend stocks can add a stream of income to their bank account. The following overview describes the general principles behind making money💰💸 from these types of investments.
Why Use Dividends for Income💡?
Companies💼 have money to fund dividend payments once they earn a profit, this means that dividend income is essentially money companies can afford to give back to their investors as a reward for holding their stock.
The Board of Directors, elected by the stockholders, or owners, has a meeting and listens to management's recommendation about how much of the profit should be reinvested in growth📤, how much should be used to pay down debt, how much should be used to buy back stock, and how much should be distributed out to the owners or shareholders🐴. The last part, the money distributed to the owners, is called a dividend.
The process of making money through dividend investing involves searching🐅 for companies that have a good chance of increasing their dividend payments year after year📆, causing more money to flow into your bank account.
As sales and profits grow, so too does the dividend, at least in some cases.💲💲 If you earn dividend income outside of a retirement account📈📌, your dividends can be reinvested🔐, used to pay household bills, send a child to college, start a business, pay for vacations, or given to charity.
The more shares you own of high-quality dividend stocks, the more money you make from dividends🎯🥊. In effect, dividend investors collect this specific type of investment over time like a child might collect baseball cards.
Done correctly, the dividend investor's net worth and household income continue to expand and grow as time🎇 passes.
Over 30, 40, 50 years or longer, it would be possible to earn a substantial amount of money each year, from dividends alone.☺☺