How to increase your dividend income without lifting a finger | Personal finance

(Charlene Rhinehart, CPA)

Dividend stocks offer one of the most convenient ways to earn extra income while you sleep. All you have to do is select the dividend-paying shares you want in your portfolio and watch these dividend deposits flow into your account. The best part is that you can qualify for an automatic increase in dividend income without doing anything extra on your part.

Below, we will dive into a proven strategy to help you increase your dividend income in the years to come.

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Start earning dividend income

If you are ready to embark on your dividend journey, you will need to invest in companies that reward shareholders with dividends. Not all companies do this, so you will need to do some quick research to make sure that some of the companies on your watchlist are dividend payers.

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That is how it works. When a business makes money, they can do two things:

  • Reinvest the money back in the company
  • Reward shareholders with extra income

Some companies will do a bit of both. take Microsoft (NASDAQ: MSFT), eg. This trillion-dollar technology powerhouse continues to invest in its cloud business while paying an annual dividend of $ 2.48 per share. share (from June 2022) to shareholders. But if you want to earn your first $ 1,000 in dividends from Microsoft, you need about 404 shares. At Microsoft’s current stock price, you have to hand out six digits to make it happen.

This is why you want to identify your goals and risk tolerance, and then research companies that join it. If your goal is to invest in companies that raise their annual dividends each year and you want to diversify your portfolio with companies beyond technology, you will want to turn your attention to a particular breed of stocks. We will discuss that next time.

Unleash opportunities for dividend growth

Some companies stick to the same annual dividend payment every year. Other companies have a track record of consistently increasing their profits. These companies may be part of the Dividend Aristocrats or the Dividend Kings Club if they have been in the game for some time.

Dividend aristocrats have proven their commitment to shareholders by delivering dividend increases every year for at least 25 years in a row. Here are some examples of companies that have joined the list:

  • Chevron
  • Cardinal health
  • Larva

Then there is an elite group of dividend payers on the list who have paid and increased their base dividends for at least 50 years in a row. Here is a preview of Dividend Kings:

  • Procter & Gamble
  • Colgate-Palmolive
  • Johnson & Johnson

Increase your income while you sleep

Let’s say you have invested in a company that has been crowned as a dividend aristocrat. The company paid an annual dividend of $ 3.48 per share last year and plans to increase the amount to $ 3.65 per share this year. It may not seem like a big deal, but it all comes together.

If you owned 1,000 shares of corporate stock, you would have earned $ 3,480 last year. The dividend increase this year will bring you to $ 3,650. That means you have earned $ 170 extra without moving a muscle.

Imagine getting a dividend belly every year for the next 20 or 30 years. If the company continues to increase the annual dividend, your income will automatically increase as long as you hang on to the stock.

Investing in dividend growth stocks can set you up for automatic pay raises for the rest of your life. Although past results do not always guarantee future success, these companies have a proven track record that can help you get started on your journey.

Diversify your portfolio with dividend growth stocks

Setting up a strategy for growth in dividend income does not mean that you have to give up other types of stocks and investments. Dividends can fit into a well-diversified portfolio of assets that align with your goals and risk tolerance.

Start creating your watch list, do your research, and keep an eye on companies that increase their returns. These small dividend increases each year can lead to thousands of extra dollars in the long run. The best part is that you do not have to lift a finger to earn your rewards.

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Charlene Rhinehart, CPA holds positions in Caterpillar and Microsoft. The Motley Fool holds positions in and recommends Microsoft. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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