Yes, you read that correctly. There is a financial account that pays you money. Good Money. Not only does it pay you, but it also increases the value of your account as well.
Does this sound too good to be true? Well, it is more than possible. All that is required is a little financial education. Yes, the only thing holding most people from using this financial account is a lack of education.
A lack of education causes fear. Fear causes hesitation or inaction. And this is why most people don’t use these accounts. But, luckily for you, I am here to educate you.
Start Investing or Pay Down Debt
The name of this financial account is called a brokerage account. And if you choose the right investments, it will pay you via dividend payments. Let’s breakdown how this works.
Brokerage Account. A brokerage account can be opened at many national banks. I have mine opened through Wells Fargo. Once you have a brokerage account created you can start transferring money into it.
Once the money is inside the brokerage account, it is held in a Cash account. From there you will have to decide what investments you want to make. For this example, we are specifically targeting dividend-paying stocks and electronic traded funds (a basket of stocks).
Dividend-Paying stocks. Dividends are a portion of a companies profits paid to shareholders. We want to become shareholders. We need to find stocks that pay dividends.
Build the Mindset of an Investor
When we search for stocks, we look for a stat called a dividend. There is also a dividend yield value. The yield is the percentage of the price of the stock which is paid to the shareholder. If the dividend yield is 3% and the price of the stock is $100, we would receive $3 for the year.
This may not sound like much, but the yield on a standard savings account is usually about 0.05%, which would pay you $0.05 for the same $100. That’s 5 cents. Which would you rather have, 5 cents or 3 dollars? This brings us to our next point, risk.
Risk. Most people are risk-averse. They will take the 5 cents every day over the 3 dollars because it is safe. Safety keeps most people from investing in the stock market. Also keep in mind that 0.05% interest rate does not keep up with inflation, which is roughly 2-3% annually.
In order to overcome our fears, we need to educate ourselves. You can be as safe, if not safer when you invest in the stock market. I wrote a beginner’s guide to the stock market: Stock Market Investing 101, 102, and 103.
Stocks vs Bonds: A Beginner’s Guide
Payments. Now that we have overcome our fears by educating ourselves, let get into the fun part; getting paid. We need to select financial instruments that help us get to our goals. I will create another article (Stock Market Investing 104) that will help you decide what your goals are. In the meantime, let’s set a payment schedule.
Monthly Payments. There are plenty of securities that pay monthly. They include REITs, bond funds, closed-end funds, preferred shares, and dividend-focused ETFs.
Getting paid monthly is a great way to start a foundation of payments. Here are some of my monthly payers:
- AGNC. This is a REIT that has a current dividend yield of 10%. It is a Real Estate Investment Trust. You can read more about REITs in my series. Part 1, Part 2, Part 3.
- PCI. Pimco Dynamic Income is my favorite closed-end fund. It currently pays roughly 10%.
- CSSE.P. This a preferred share from Chicken Soup for the Soul. It pays 9.41%
- JNK. This is a High Yield Bond Fund that pays roughly 5%.
Capital Gains vs Dividends: Which is better Investing Method
Quarterly Payments. Most companies that you have heard of pay dividends quarterly. I like to layer these on top of my monthly payers. Over time you will start to look forward to your favorite companies paying. I just received $14 this month from AT&T. I will breakdown what stocks pay in which months.
- January, April, July, October. Coca-Cola (KO), Phillip Morris (PM), and Alteria (MO).
- February, May, August, November. AT&T (T), Abbvie (ABBV), and Apple (APPL)
- March, June, September, December. Prudential (PRU), Target (TGT), and McDonald’s (MCD)
Daily Dividend Living. Now that we have overcome our fears and setup our monthly and quarterly dividend-payers, what is next? Now we consistently invest into our brokerage account and watch our dividends keep growing.
I recommend re-investing most of your dividends back into the stocks they came from. This will increase the compounding effect. However, take a few of your dividends out to enjoy. For me, spending $10 received passively from investments is very humbling and exciting.
When I receive large dividend payments it reminds me that I used my financial education to create passive income. I will literally wake up and find $10-20 in my accounts. This is a great feeling.
The question is passed to you. Now that you know about brokerage accounts, dividends, and the stock market, how will you use this information? There is still a lot to learn, but you have enough information to get started. Even if that means buying JNK for monthly income and then adding KO, T, and MCD to your investment portfolio. That would cover every month of the year. It is okay to start off very simply.
The most important thing is starting. Take action and reap the benefits of dividend investing today.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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