It's A Set It and Forget It Method
Dividends & DRIPs
There is a way to turn one share of a stock into multiple shares of a stock. If you are hard on cash and want to begin to grow your investment portfolio, this is the best way to do that. First, we need to know the basics of what Dividends and DRIPs are.
Dividends – A dividend is very similar to the interest that you make on your money when you have it in the bank. When you own a stock that pays a dividend (not all stocks do), that company will pay out dividends based on their promoted time frame. For the most part, this will be on a quarterly time frame (so every three months). Depending on what stock you purchase, you can get paid a dividend of 1%-10% of the value of your stock. So, if you bought a stock for $5 and it is now worth $50 and they payout on average 3% in dividends, then every quarter you would get $1.50. After a year, you would have received enough dividends to cover the initial cost of the stock and would now be sitting on a stock worth $50 and earning you passive income. At that point, it’s basically free and easy money.
DRIPs – DRIPs, or Dividend Reinvestment Plans, are programs offered with your brokerage company where your dividends are used to buy more stock. Using the numbers from above, every quarter you would get $1.50 and they would take that dividend and purchase some more shares. If shares are worth $50, then they would only be able to purchase 3% of a share at that point. This may seem like small potatoes, but if you think long term you can turn a $5 investment into a portfolio worth more than $1,000. Now if you purchased 10 shares at your initial $5, every three months you would get $15. It would only take a year for you to turn those 10 shares into 11 share through the DRIP program.
Think Bigger and More Long Term
If you did all the steps, purchased dividend stocks, and let them sit in your portfolio overtime, you can easily see how your money can grow overtime. The best part about it, is that it is exponential. The longer you keep your DRIP program in place, the more it will build up. Every time your dividends get you a new share of that stock, that new share is going to add more buying power moving forward, and so on, and so on. What could have been a $5 investment, could prove to be a $1 million portfolio by the time you retire.
Put it to the test. Find a solid stock that offers dividends and test it out. I tried it with a simple one called SOHO (Southerly Hotels). They offered a 6% dividend at a $6 share price. I purchased a few shares, setup my DRIP through my brokerage, and now that account is growing all on its own. Feel free to check back 20 years from now and I’ll let you know how it did.
** Investor Disclosure: getting2zero can have ownership in some or all of the companies mentioned in the above article. Opinions/bias can present themselves through the articles written. Please conduct research prior to investing in any companies listed on this website as the information provided in the above article can written in a manner of favor from the writer.
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