Investing in dividend stocks is an excellent way to build an extra income stream.
I’d argue it’s the easiest income stream of all to build. But it requires time, money, patience, and research.
From the moment I received my first dividend payment from (GLW) Corning, I knew this is how I wanted to build wealth.
So since 2017, I’ve been building my dividend income stream up to over $628 annually. That’s over $50 per month for holding stocks. I even publish my dividend income updates monthly to document how much I make monthly.
Considering that investing in dividend stocks is my main investment strategy, I wanted to share how to earn money from dividend investing.
Investing in Dividend Stocks – Acquire Investment Knowledge
Before beginning to invest in dividend stocks, I would recommend every investor reads The Intelligent Investor
Anyways, dividend investing is not just about selecting stocks that pay a dividend. Most dividend investors are also value investors. The goal is to buy high quality dividend stocks at discounted prices.
The key to this stage of investing in dividend stocks is to build investment knowledge. The Intelligent Investor
I’d recommend checking out this list for reading material.
Get Your Account Set Up
Now that you’ve read The Intelligent Investor
To get started with investing in dividend stocks, you just need to open a self directed investment account. If you’re in Canada, it could be a TFSA, RRSP, or a non-registered investment account.
Related post: Canadian Dividend Investing Strategy: Benefits of the RRSP
Once you decide on the account type and you have money to invest, if you live in Canada, I would recommend Questrade to invest with. You can open an account by clicking the banner below:
My affiliate, Questrade, will give you $50 worth of free trades if you use my link through the banner above.
Best of all, their platform is amazing and really easy to use. Based on my experience, which involves working at a stock brokerage, it’s the best in Canada for trading.
Funding Your Investment Account
First off, make sure to fund your investment account with money you’re prepared to invest for 5 to 10 years, because dividend investing is a long term investment strategy.
In my opinion, you can start investing with as little as $500 to $1,000. That amount is enough to make the cost of the trade worthwhile.
My largest stock positions are in the $3,500 to $5,000 range. But I do maintain positions as small as $500 to $1,000.
Once you’ve funded your account, there are a few different strategies you could consider to continue investing in dividend stocks.
Related Post: An Investment Strategy to build a Cash Flow Machine
If you receive a salary and can save a consistent amount, you could consider dollar cost averaging into dividend stocks. In other words, you buy the same amount of stock each time you get paid regardless of the stock price. If you save $250 per pay, you automatically buy $250 worth of a dividend stocks each pay.
Alternatively, you could save up cash in your Questrade account to buy during stock market corrections and dips. However, it is challenging to time the market.
Another option is to buy once per year, in order to invest the accumulation of dividend income and savings all at once to cut down on fees.
All options are effective if done consistently over time. There is also ETF investing, which requires less research. Questrade offers free ETFs without any minimums or limits. You can open your account below:
Select a Stock – Use a Stock Screener
Alright, so you have an investment foundation from reading, and you have money ready to invest in your Questrade account.
To select a stock, use the investment knowledge and rules you learned to find a stock, decide how many shares you can afford, then place an order.
In my personal experience, the best course of action is to always buy the absolute best companies available. In fact, before you buy individual stocks, you should buy an S&P 500 Index fund. That should be approximately 90% of your portfolio and the rest can be individual stocks.
But if you insist, this is where investment research comes in. In my experience, it really helps to develop a comparison chart for proper analysis. I created my own list using Apple Numbers with all of Ben Graham’s rules from The Intelligent Investor
From there, I try to narrow it down to the companies I understand and that I personally support.
Because the market is so volatile and anything can happen, it’s best to hold companies you believe in so you won’t sell.
Discover Dividend Stocks through Mutual Fund’s Top 10 Holdings
My investment career officially began when I became a Mutual Fund Advisor for one of Canada’s big 5 banks. That was my first job in the investment industry.
I was one of the Mutual Fund Advisors that worked in the call centre. Anyways, through this position, I became aware of mutual fund fact sheets. These fact sheets lay out details that every investor should know when investing in a particular fund.
Through reading through these fact sheets, I realized that each mutual fund lists its stock holdings and its top 10 holdings.
In my view, these are companies that have already been analyzed by a professional analyst. Technically, the stock analysis is done for you if you keep an eye on the mutual fund’s holdings.
This is a method I use to find high quality companies that have already been qualified for a specific risk tolerance.
Build a list of Dividend Stocks
Now that you’re a dividend investor, you’re looking to grow your dividend business like any business owner would.
In order to stay prepared for stock market corrections and cheap stock prices, I maintain a predetermined list of stocks to buy. I use my broker to build these lists.
This way, once there’s a dip in a particular stock on my list, I am able to buy and take advantage of the lower price. I’m comfortable buying because I’ve already completed an analysis. It allows for quicker decision making.
In short, build a list of stocks to buy and buy whatever is the best value on the list at the time you are buying.
How much will you get paid from Dividend Investing?
The most important part of every job is how much it pays, obviously.
In regards to dividend investing, the answer to how much it pays is simple in the beginning, but it becomes more complex long term because of dividend raises and compound interest.
The simple answer is most dividend stocks pay between 2 to 4% dividend yields. So for every $1,000 you can afford to invest, you will earn $20 to $40 annually.
However, in the long term, if you select companies that raise their dividends annually, those yields could grow to double over time. So your original $20 to $40 pays $40 to $80 on $1,000.
In addition, if you continue to reinvest your dividends and save more money, compound interest will begin to multiply your wealth even further.
Payment frequency and how payments are received
So when do dividend investors get paid?
Well, dividend investor’s pay schedules depend on the companies they own. Technically, it’s possible to build your own payment schedule to supplement your income.
Each company has an ex-dividend date and a payment date. To receive the dividend payment, the shareholder must have owned the stock on its ex-dividend date.
Most dividend paying stocks pay quarterly dividends, while other investment types such as REITS pay monthly.
Since I currently have 15 different positions, I receive multiple payments on different months. I document them all under dividend income updates.
Furthermore, the payments are deposited directly into your Questrade account on the stock’s payment date.
Keep Funding Account, DRIP Shares, and Reinvest all Dividends
Of course, investing in dividend stocks is not a get rich quick scheme. It takes time.
Depending on how much money you have to invest, it could take years to build up an income stream that covers your expenses.
But as long as you have enough extra income to contribute to a dividend portfolio, anyone can follow these steps to create a meaningful income stream.
If you’re willing and able to save 50% to 70% of your income, you could be financially independent in no time.
Even if you’re only able to save $250 to $500 a month, it’s possible to build an extra income stream that pays you thousands of dollars a year within a short period of time.
The key is to be consistent with saving and investing, and consistently reinvest the dividends. I would also recommend taking advantage of a DRIP if the stock you are investing in offers it.
10 to 20 years of that is enough to build a meaningful income stream.
Concluding Thoughts
Dividend income investing is my all time favourite income stream.
It’s easy to begin and doesn’t have much of a startup cost compared to real estate investing or starting a business.
Investing in dividend stocks is predictable income that can be built discreetly over your career.
And most importantly, it’s passive income, and the internet has made it an accessible option for everyone.
“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham
In conclusion, these are the steps I followed to begin investing in dividend stocks. I hope they are helpful. I built an income stream that pays me over $628 per year in 2 years by only investing $250 to $500 per month on average. So, even with an average savings rate, it’s possible to start generating passive income on the side by investing in dividend stocks.
To find out what stocks I’m investing in and which companies pay monthly, check out my monthly dividend income updates.
I am not a licensed investment or tax adviser. All opinions are my own. This post contains advertisements by Google Adsense. This post also contains internal links, affiliate links to Amazon, Bluehost, and Questrade, links to external sites, and links to RTC social media accounts.
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