One of the regular phrases you hear when you read finance and investment articles is ‘passive income’. The best and most effective to earn a passive income and create a regular monthly income is to make sure you invest in dividend paying companies. These are mainly companies that pay money from any profits that have made during the year. This is called paying shareholders dividends. There are a lot of stocks with high dividends in S&P 500 which you select for dividend investing
Dividend is a term derived from the Latin ‘dividendum’, which really means something that is divided. In actual truth it means dividing the spoils of war or certain amount of profits made when a trade venture was factored out to merchants. In today’s climate most companies tend to keep a substantial portion of their profits. This is always known as ‘retained earnings’. If there is any money left over, it is usually divided and distributed amongst shareholders according to the number of shares they hold in that company.
Dividends can be paid monthly, quarterly,semi-annually or annually. There are times when special dividends can be issued, if a company thinks its necessary. This payment could be made in addition to the normal regular payments. Most of the time dividends can be paid in cash, or be taken as shares or as store credits if it is a retail consortium. If you do hold shares in a dividend paying company, you can receive regular cash payments.
Another way is to use the investment and reinvest in the same company. In other words don’t take the cash, just automatically buy shares. This is known as DRIPS. Its almost like having some free shares. As an existing shareholder, you can avoid transaction costs that may come with the additional purchases.
DRIPS is a good way to maximize your investment portfolio in the future. Although you lose your cash monthly income, you will benefit in the long term as your portfolio will be a lot larger due to the free shares.
So if you have a lot of spare cash lying around and can afford to invest it, then the way to go is for investing in best dividend stocks. If the company stock outperforms during the year, then you will have recouped your investment at a greater return.
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