Learn How to Create Wealth with Passive Income

One of the easiest ways to create an asset is to buy stock in a publicly-traded company. There are literally thousands upon thousands of companies that allow you to buy stock in them. And thanks to today’s technology, if you already have an online brokerage account, you can buy stock in a company in as little as 10 seconds using your computer or even your cell phone.

Even if you’ve never bought stock in a company before, I’m sure you’ve still heard the phrase “Buy Low, Sell High” at least once in your life. “Buy Low, Sell High” means that when you buy a stock, you buy it at a low price with the hopes that in the future, the stock price goes up so you can sell it for more than you paid for it, making a nice profit. That’s just one way to make money with stocks. Another way is to buy stocks that pay dividends.

People who own shares of stock in a company are referred to as shareholders. Some companies distribute their earnings to their shareholders in the form of stock dividends. Companies like Verizon, McDonald’s, Walmart, AT&T, Boeing, and Kraft Foods all pay dividends to their shareholders. To put it simply, these companies pay you money just for owning shares of their stock. To show you how dividends work and how they can provide passive income, let’s take a look at Verizon.

Verizon trades under the ticker symbol VZ. At the time this article was written, Verizon’s stock price was $29.90 a share. If you go to the Yahoo Finance page for Verizon, you’ll see all kinds of important statistics and information such as Market Cap, P/E Ratio, EPS, Volume, and so on. But for the purpose of this article, we’re going to focus solely on the “Div & Yield” part. This is where you’ll see what Verizon’s current dividend is per share, and what the current dividend yield is based on the stock price.

As of this writing, the Yahoo Finance page for Verizon shows that the current dividend is $1.90. This means that over the course of a year, Verizon pays you $1.90 for every share that you own. So if you own 1000 shares in Verizon, then you’re total dividend payments over the course of a year would be about $1,900, which is $1.90 (the dividend Verizon pays shareholders) * 1000 (the number of shares you own). Just like a stock price though, dividend payments do fluctuate, they can go up or down. However, unless a company’s financial situation changes dramatically in a short period of time, dividend payment amounts don’t typically change much often.

If you take the $1.90 dividend that Verizon pays and divide it by the current stock price of $29.90, you get 0.0635. Multiply that by 100, and you get 6.35. That’s the current dividend yield for Verizon, 6.35%. The dividend yield is the magic number you want to look for when choosing a dividend-yielding stock to invest in. Compared to the average savings account rates of .50% to 1%, 6.35% is much more attractive. Dividend yields vary from stock to stock. There are a lot of stocks that pay no dividend, so they have no dividend yield. Then there are other stocks, like REIT’s, that have dividend yields of 12% to 18%. As attractive as those high yields are, make sure to research the financial health of the companies offering those dividend yields before making an investment.

So now you’ve learned a little bit about dividends. But, how exactly are those dividends paid to you? Well, most companies distribute their dividends quarterly. Let’s use Verizon as an example again. If you divide the $1.90 by 4, you get $0.48. So every 3 months Verizon sends you a dividend of 48 cents. That money is usually deposited directly into your brokerage account, which you can then withdrawal as cash. Or, you have the option of having your dividends automatically buy more stock in that company, resulting in more dividends. Buying more of the same stock with it’s dividends is called Dividend Reinvestment, and most brokerages offer this service for free.

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