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How To Make Money Off Dividends

Everyone who enters the stock market wants to make money from their investments. And to do that, first, they need to understand how people really make money from stocks. Basically, there are two ways to make money from the stock market  Capital appreciation and making money from dividends. 

When it comes to capital appreciation, most people know this method to make money from stocks. Buy low and sell high. Purchase a good stock at a low valuation and wait until the price goes up. The difference in the purchase and selling price is the profit (capital appreciation).

Making money through dividend investing requires finding companies that have a good chance of increasing their dividend payments year after year, thereby causing more money to flow into your bank account. As the sales and profits of a company grow, so does dividend income.


Important terms to know regarding dividends.

Before we dig deeper, first, you need to learn few crucial terms regarding dividends-



Dividends are the profits that a company shares with its shareholders as decided by the board of directors.


Dividend yield: 

Dividend yield is the ratio of annual dividend per share divided by the price per share. The formula for dividend yield is

given below:

Dividend yield = (Dividend per share/ price per share)

Dividends by a few popular companies

Here are the annual dividends of a few famous companies in U.S (2023).

  • Pioneer Natural Resources (PXD) - Dividend yield: 13.5 percent - Annual dividend: $27.24

  • Devon Energy (DVN) -Dividend yield: 6.7 percent -Annual dividend: $3.56

  • Dow Inc. (DOW) - Dividend yield: 5.1 percent - Annual dividend: $2.80

  • International Business Machines (IBM) - Dividend yield:  5.2 percent - Annual dividend: $6.60

  • Verizon Communications (VZ) - Dividend yield: 7.1 percent - Annual dividend: $2.61 per share

  • AT&T (T) - Dividend yield: 6.1 percent - Annual dividend: $1.11 per share

  • Prudential Financial (PRU) - Dividend yield: 5.5 percent -Annual dividend: $5.00 per share

  • Philip Morris International (PM) - Dividend yield: 5.1 percent - Annual dividend: $5.08 per share

  • Walgreens Boots Alliance (WBA) - Dividend yield: 5.8 percent - Annual dividend: $1.92

  • 3M Company (MMM) -Dividend yield: 5.7 percent - Annual dividend: $6.00


It's important to note that dividend payments can change over time and vary based on company performance, so these amounts may not be accurate or up-to-date.


Bottom Line

Dividend-paying stocks or mutual funds can be a great way to earn extra income. Remember, if you own these securities in a taxable brokerage account, you'll owe taxes on the income, even if you reinvest the dividends. To avoid taxes, you'll need to own them in a tax-advantaged account like an IRA, 401(k) OR TSFA.

Dividends increase over time.

This means that a good, fundamentally strong company will increase its dividends with time.


while dividends can be a good source of income, they are not guaranteed. Companies may reduce or eliminate their dividends if they face financial difficulties. Therefore, it's important to do your research and diversify your investments to reduce risk.


Image by Blogging Guide
Image by Morgan Housel

Dividends are a portion of a company's profits that are paid out to its shareholders. If you own shares of a company that pays dividends, you can make money from those dividends in a few different ways. Here are some tips on how to make money from dividends:


Invest in dividend-paying stocks

The first step to making money from dividends is to invest in companies that pay dividends. Look for companies with a strong history of paying dividends, and ones that have a track record of increasing their dividends over time. You can research dividend-paying stocks on financial news websites, stock market blogs, or consult with a financial advisor.


Invest in dividend-focused ETFs

Another option is to invest in exchange-traded funds (ETFs) that focus on dividend-paying stocks. These funds typically hold a diversified portfolio of dividend-paying stocks, which can help to reduce your risk.


Monitor your investments

Keep an eye on the companies you've invested in and their dividend policies. If a company stops paying dividends, or if its dividend growth slows down, it may be time to consider selling your shares and looking for other opportunities.


Reinvest your dividends

Many companies offer a dividend reinvestment program (DRIP) that allows you to automatically reinvest your dividends in additional shares of the company's stock. This can help you increase the size of your investment and potentially earn more dividends over time.


Consider high-yield dividend stocks

High-yield dividend stocks are those that pay a higher dividend yield than the average for the stock market. These stocks can offer higher income potential, but they also come with a higher level of risk.


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