Simply Investing: How a $25k Investment Generates $4k in Dividends Annually
On paper, dividend investing sounds simple. But getting started is tough. So is staying the course. Dividend investing can provide steadier returns than relying on the ups and downs of the market. But it also requires a different focus.
That said, those who follow dividend investing over the course of an investment lifetime can end up amassing significant streams of income. That can be useful in retirement, as it takes out the risks of having to sell off stocks.
At its core, stocks are a fraction of a business. And a dividend is simply some of the cash generated by that business being returned to those fractional owners. Dividend yields are based on the payout and the price of shares at purchase.
Typically, a company that starts a dividend will have a significant number of shareholders interested in continuing to do so. Most stocks that pay a dividend have yields of 2-3 percent. However, those dividends can grow over time as corporate earnings grow.
Investors can turn a small stake into significant income simply by investing in companies with a focus on dividend growth over time. Staying in a dividend growth stock for longer will lead to higher total income, especially if shares are reinvested over time.
One example of a company with long-term dividend growth is PepsiCo (PEP). They’ve raised dividends for 64 years. While the current dividend yield isn’t high, early investors have benefited from increasing cash payouts.