What is Dividend Income?

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Dividend income is earnings received like a shareholder based on a percentage of a company’s earnings, generally in the form of cash payments, but can also be paid in the form of more shares or any other property. Investors who have experimented with multiple strategies within their portfolio to be able to generate income realize that dividend investing can make additional income while increasing the market price of their portfolio.

As long as you follow careful guidelines and make smart choices, buying stocks which pay dividends may shell out over time, giving you an additional income source. Mutual funds and bonds, as well as stocks, also may overtime dividends for their investors. Dividend income is stable, helping to improve investment returns. They're a great for not just fixed school and old-school investors, but regular investors as well. Keep reading to find out a few benefits of dividend income.

Actual Income

Yes, that is why it’s known as dividend income; it is actual income. The only real return investors receive when purchasing stock is dividends. One of the main advantages of this is that it provides investors having a quarterly based consistent realized income. Remember, until stock continues to be sold, capital gains are not realized. Unfortunately, capital gains can completely vanish following a drop in stock price. What this means is no income. In fact, during the last decade, investors wouldn’t have made any income if not for dividends due to stock indices being virtually flat.

Tax Advantages

Most dividend income has specific tax advantages, nothing like earnings received from other investments or perhaps your employer. To be treated like a qualified dividend, the stock must be purchased before the ex-dividend date and should be held for at least sixty days. Those that qualify are then taxed between five and 15 % interest rate. The fifteen percent pays by higher income wage earners, as the low income earners only have to pay a 5 % dividend tax rate. Nonetheless, shareholders get to keep a larger majority of their income due to these low tax rates.

More Shares

Receiving dividends allows you to be able to purchase additional shares. Reinvesting your dividend income is a fast and easy way to help your portfolio to continue growing. In addition, investors are able to accumulate more shares easier with dividends. This is because investors have first have the opportunity to reinvest either a portion or all of their dividend income back into their initial stock investment. In fact, it’s done so often that many brokers and Dividend Reinvestment Plans (DRIPs) offer all of their customers free reinvestment options.

Where to Look

Generally, the best place to look for dividend income is stocks. Stocks normally have high dividend yields. Check out utility companies, real estate investment trusts (REITs), and telecommunication companies. All of these sectors are known for having high payouts in comparison with other industries. For instance, stocks in Consolidated Edison and Duke Energy, both utilities, both pay over 5 % in dividends. Some REITs have reported paying out in the double digits. Furthermore, Verizon and AT&T are great example of telecommunication companies which are currently paying out around six percent to their investors. All three of these are great, solid dividend income sources.

Dividend growth money is another investment opportunity for receiving dividends. There’s some dividend growth funds which chiefly invests in stocks which yield large cap dividends. In addition, funds like these have extremely low expense ratios while maintaining modest, but consistent dividend yields. Another dividend income investment we mentioned before was bond funds, that are good for monthly dividend payments for everybody who is a bondholder.

Dividend income can definitely come in handy. As a matter of fact, some retirees use their dividends to assist with retirement. You can even have your dividend income go straight to your retirement fund. Whatever you decide to do with it is up to you, but everyone is able to use more money. If you have chose to move some things around in your portfolio or even if you’re only starting out, checking into which companies you will get stock out which payout dividends is simply a smart thing to do. Be careful choosing which companies; get help if you’re aren’t sure. Best of luck!

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