There are many companies that offer shareholders dividends for owning shares of common stock in the company. Dividends are the shareholder’s share of company profits. For example, Coca Cola (KO) offered shareholders a dividend payout of $0.37 per share for the third quarter of year 2017. Someone that owned about 2,703 shares of Microsoft would have earned you about $1000.00 for each quarter (every three months) of year 2017.
2,703 shares may sound like a huge number, almost unreachable but allow me to show you how attainable it actually is. If one wanted to purchase 2,703 shares of Coca Cola (KO: $45.90) today it would cost about $124,061. The average household income America today is around $34,000 a year[i], and saving 20% percent of that salary would yield about $6,800 for that year. Assuming the salary stays the same, and the share price doesn’t shift much, and the dividend payout doesn’t change it should take about 18 years to purchase 2,703 shares. With that many shares, along with all assumptions included, you will receive a dividend payout of $1000.00 every three months in the year beginning in the year 2035 if you started today.
Here are a few things to also consider:
- There are some companies that you will find that will offer a very high dividend yield. Usually that sends me a red flag that there is something negative going on with the companies financials and they are attempting to attract investors by offering a very high dividend payout. Beware of those companies.
- Usually a company with a history of consistently raising their dividend payout will continue to do so. Companies with payout amounts that are inconsistent have a higher risk value. I usually check company dividend history using Fidelity.com (contact me for more info).
- Not all companies offer dividends
- Dividend payout amounts are not guaranteed and may change at the company’s discretion. But most companies keep in mind what the happiness of investors and try not to change or deny dividend payouts.
LET’S RAISE OUR FINANCIAL LITERACY ONE STEP AT A TIME!!!