What Are Dividends? | Investing For Passive Income!

Hey guys, Bridget from Money After Graduation here and I wanted to answer a common question I hear all the time and
that’s, what are dividends and how do I get them? Dividend investing is one of my
favorite ways to invest in the stock market and it’s one of my strongest
passive income streams that I have coming into my wealth portfolio. I love
being a dividend investor and I think dividend paying stocks and ETFs are an
essential in every Millennial’s portfolio. To understand what a dividend is, you
really just have to understand what it means to be a shareholder of a company.
When you buy stock in a company, you’re essentially becoming a part owner of
that company. You’re giving them your money in exchange for a piece of their
company. Because you’re now a part owner of the business, you’re entitled to some
of the rights and privileges of being an owner in the business and that includes
the profit. So dividends are usually a cash distribution that’s paid quarterly
or sometimes monthly to shareholders in a company. You don’t have to do anything,
all you need to do is purchase the stock before the ex-dividend date and then you
will receive your payout proportional to the number of shares you own on the
dividend payout date. This is what makes dividend investing so attractive and so
easy it’s because it really is passive income. All you need to do is own the
stock, and you don’t need to take any action after that. The money is
automatically deposited into your brokerage account, then you can use it to
buy more shares in the same company, buy shares in another company, or to withdraw
and spend it. One of the things that makes dividend investing so attractive
is companies often raise their dividends every year, typically by 10% to 15%. This means the longer you own a stock, the more you’re making on your
original investment. Most stocks will pay dividends in the range of about 1% to 3%, but you can definitely get stocks that pay seven, eight, or even
double-digit dividend rates. It’s important to remember when you’re
chasing these dividends that rate reflects risk. So high dividend payers
are usually riskier stocks. Nevertheless, owning a mix
and a diversity of low dividend payers and high dividend payers because you
have low and higher risk stocks in your portfolio is a great way to diversify
your investments and increase your overall passive income. Like with all
investing, there are associated risks, the main one of dividend investing being
that the company could reduce or even eliminate its dividend entirely. Now this
is extremely rare because it makes shareholders mad if you stop paying them,
so a company will only cut or eliminate its dividend is it’s facing dire
financial straits. Otherwise shareholders are the most important people to a
corporation so they will go to great lengths to continue to pay that dividend,
pay it on time and increase it year over year. If you guys are interested in
dividend investing or investing in general you know I teach a course called
The Six-Figure Stock Portfolio, I’ll leave a link below if you want to check
it out. Otherwise I hope you found this video informative and feel more
comfortable understanding what dividends are and how they work in the stock
market and why they can do so much for you. If you enjoyed it, please give this
video a thumbs up and subscribe to my channel and I will see you next week.

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