There are companies that pay dividends to their shareholders from the portion of their profits and this is the reason why some investors earn passive income through their dividends coming from their investments. These companies pay dividends to their shareholders monthly, quarterly, half-yearly or annually.

The dividends that the shareholders receive are separate from their earnings when they sell or trade stocks from these companies. Some investors invest solely in dividend paying stocks because they want to have an additional income to their investment portfolios. Dividends can increase in the long run and could even provide you regular income. 

Programs like Dividend Reinvestment Plans (DRIPs) may help you combine your dividend earnings. DRIPs are set up by some of the companies that pay dividends to their shareholders. They do this by getting your dividends then reinvest it automatically with them. So you are reinvesting by buying more shares of stocks. In this way, these companies are also helping you increase your future stock investments. 

The benefit of owning a stock through DRIP is to make your portfolio use the method known as "dollar cost averaging" where you invest the same amount of money each period to buy additional shares. The less number of shares will be bought when the stock price is high and more number of shares will be bought when the stock price is low. When you keep and maintain your shares of stocks from companies that pay dividends, you may always receive regular cash payments by just keeping the stocks.

Moderately Challenging


    • 1

      Research for companies that are raising their dividends for their shareholders. Usually, when companies will become very confident in their outlook for future profits and they have a huge and growing earnings compared to their competitors, they share some of their profits to stock holders. These companies can produce free cash flows from which they can pay dividends to their shareholders because they have solid businesses. There are the companies out there that you need to have business connections with for the reason that they are well-managed and possess a track record of continuously sharing financial gains to their shareholders.

    • 2

      Save money everyday for your stock investments. Success in stock investing starts in the way you spend your earned income that may come from your salary, business or from other legal sources. Spend a lot less than what you earn. You need to think and decide that your stock investments should gain profit every year compared to the amount of money that you would spend annually.

    • 3

      Make sure that you have an 8-10 month emergency fund and maintain your living expenses like in CDs annually. You'll feel safe and secure when you have these things in place because this can give you confidence while you're also investing in stocks that offer dividends. In this way, whatever happens through your stock investments, you'll have something to lean on when it comes to your financial challenges in life.

    • 4

      Look for stock brokers (if you want to work with one) that will offer an alternative where you can reinvest your dividends in extra shares of stocks by the time that the dividends are received. This could be beneficial on your part as an investor if you can set up a dividend reinvestment program (DRIP) when you decide to have a broker. You still need to clarify if you will not be charged additional transaction fees or commissions before doing this since this type of offering is usually given free of charge.

    • 5

      Buy stocks in companies that you have researched well that pay good dividends to their shareholders. These are the companies that have a well-organized board of directors who are able to raise the dividends of their own companies. Select reliable and stable companies with a good track record when it comes to paying dividends to their shareholders.

      There are industry sectors that even increase the dividends for their share holders as they stay longer with them. You may also look for the essential or necessary service sectors like health-care, basic consumer needs, utilities and energy. Companies in these sectors generally produce products that consumers need for their daily use.

    • 6

      Select the right stocks for your regular income through dividends. If you are an investor looking for high dividend paying stocks then there are a couple of metrics you need to be familiar with. One important dividend stock metric is the dividend yield. 

      A dividend yield is calculated by dividing the annual dividend per share by the stock's price and this kind of measurement indicates the percentage return how the company pays their shareholders through stock dividends. Generally, a stock that has a stock dividend rate of over 4-5% has a very high performance. Find out the companies past data on how they pay their dividends to their shareholders so that you may feel a bit secure when doing business with them.

    • 7

      Take advantage of owning funds that aims on paying dividend stocks. You could probably include dividend paying stocks such as mutual funds and ETFs so that your dividends may be more constant and regular. If your funds are more diversified then you could also receive dividends from these funds semi-annually, quarterly or monthly. 

      Dividend paying stocks could be beneficial to you as an investor even if you are still new to investing. The regular income that you can receive through dividends is already an extra source from your earnings and you could also use it to grow your investment portfolio for the future.

    • 8

      There are websites that offer a free list of high dividend paying stocks and all you have to do is research what are these stocks so that you could earn regular income through dividends. Always consider a dividend stock which belongs to a well established and well managed company, has industry growth with consistent performance, and has a relatively stable stock price. Good luck!

Tips & Warnings

  • There are many dividend paying companies that offer DRIPs to their shareholders. Most banks and some financial institutions also provide dividends and offers DRIPs. You can easily research for companies that offer DRIPs online.

  • Some companies that offer DRIPs may require that their stock holders will own a minimum amount of shares before they can participate in the said program. Some of these companies may urge that the shares you have in their company should be kept under your name as the shareholder instead of using the name of the brokerage.

  • You also need to check on the tax obligations for the dividends that you earn. Don't worry because dividends are usually taxed at a lower rate compared to other interest income.

  • Avoid the temptation of overspending with the things that you don't really need for the reason that you were able to gain more profit coming from your regular income through dividends. Do the opposite by rolling it into additional stock investments every time you have an excess amount of money coming from your savings annually.

  • Be cautious of any company that suddenly cuts its dividend offering. Look for companies without massive debts. 

    Companies that have good financial standing could easily borrow if they need a little support for their business operations in order to expand it including raising the dividends for their stock holders.

  • Dividends may be cut anytime from various companies. Some companies have stopped offering dividends to their shareholders so that they can save and preserve their investment capital.