How to Make Money From Dividend Paying Stocks
- 1). Decide whether you want to concentrate on individual stocks or mutual funds. If you are comfortable choosing your own stocks, building a portfolio of dividend-paying companies can allow you to build a steady and reliable stream of income. If you prefer using mutual funds, you can derive income from those purchases as well.
- 2). Use the stock screening tools available from your brokerage firm to filter for stocks that have a history of raising their dividend payouts year after year. If you do not have a brokerage account, or if your broker does not offer screening tools, you can use the tools available from the Morningstar, Forbes, Wall Street Journal and Motley Fool websites, among others. Although there are no guarantee that those high dividends will continue, a company with a strong history of dividend payments can be an excellent choice.
- 3). Research the stocks you have identified based on their dividend payout and dividend history. Research the amount of free cash flow the company generates, since it is that cash flow that helps to fund the dividends.
- 4). Calculate your expected dividend income based on the number of shares you purchased and the dividend payout on each one. Set aside part of that dividend income to pay the taxes you will owe. Dividend income is taxed at your ordinary tax rate unless the shares are held in a tax-deferred account like a 401(k) or IRA.
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