Dividends are one of the most basic forms of passive income. They tend to be consistent, and they aren’t hard to obtain. Dividends are paid by stocks, bonds, ETFs, mutual funds, and are often noted to be one of the best ways to invest.
The main reason, when looked at on a longer timeline, is because a stock that gives a dividend may not appreciate in value as much, but when compared to a growth stock that doesn’t pay a dividend, they do just about the same. Meaning a more volatile growth stock gave about the same return as a dividend stock, except the dividend stock didn’t necessarily jump up and down over the timeline.
For the majority of people, the dividend is the best way to go when it comes to passive income investing. There are a lot of great dividend paying stocks, but we are more partial to diversification so we like to look at dividend paying ETFs, and Mutual Funds. Depending on the brokerage company you are with, they may have funds set-up that have low-cost, no transaction fees, and good performance which will let you get the most out of your money.
If you can’t afford to buy many shares at a time, then it is often advantageous to go with one of your broker offered products. For example: If you can only afford $100.00 a month and your broker offers their products with no transaction fees, then it would probably be better to spend your $100.00 on their product rather than buy an iShares ETF and pay an $8.00 commission. When you’re investing $100.00 a month, you can’t afford to throw away 8% of your investment on commissions, unless the iShares will greatly outperform your brokerage option!
If you don’t like the offerings of your broker, try to find one that you do like. If nothing satisfies you then you should consider buying the ETFs, Mutual Funds, or stocks from a low-cost broker like Sharebuilder, or Zecco. Most often you should be able to find an offering from your broker as many of their offerings will basically mimic some other well-known index or fund.
Dividends will not make you rich over night, but if you build them piece-by-piece then you will see great results in the future. Dividend investing is a smart, and more stable way to build wealth. Many people don’t like dividend investing because you won’t have your Ferrari tomorrow, and if that is what you’re looking for then the lottery ticket can be purchased at your local gas station; but we still doubt you’ll have your Ferrari tomorrow, and you’ll be a dollar poorer.
We located a great article over at Dividend Growth Investors about 16 Quality Dividend Stocks that have been paying out dividends consistently. It is a good read even to just get acquainted with some of the different stable offerings available out there. Just remember: Past performance is not necessarily indicative of the future and will not guarantee similar results.