Why You Should Consider Monthly Dividend Stocks Under $10
Investing in monthly dividend stocks under $10 can help diversify your portfolio while providing a steady passive income stream.
Contributing Writer at Tally
June 13, 2022
This article is provided for informational purposes only and should not be construed as legal or investment advice. Consult with a professional financial or investment advisor before making investment decisions.
If you’re involved in the stock market, one of the terms you’re bound to come across is “dividend stocks.” A dividend stock is one that makes distributions to shareholders, either in the form of cash or additional stocks.
In this article, you’ll learn everything you need to know about investing in dividend stocks. Specifically, what monthly dividend stocks are, why you should consider monthly dividend stocks under $10 and how monthly dividend stocks can be a part of your overall investment strategy.
What are monthly dividend stocks?
A dividend payment, according to Forbes, is “a payment in cash or stock that public companies distribute to their shareholders.” Essentially, dividends are ways for companies to share their earnings and profits with their shareholders. A monthly dividend stock is a type of stock that pays out a dividend each month.
The previous definition of dividend payments refers exclusively to public companies. It’s worth noting that private companies can share dividends as well. However, purchasing shares in a private company can be trickier than purchasing shares in a public company.
Public companies are listed on various stock exchanges, such as the New York Stock Exchange (NYSE) or the Nasdaq. You can easily track the share prices of these companies. When the time is right, you can buy stocks through an online brokerage. Private companies are not listed on these stock exchanges, which makes it harder to measure their stock price and purchase shares.
Why should you invest in monthly dividend stocks under $10?
Acquaint yourself with dividends
Investing in monthly dividend stocks under $10 could be a good way to get your feet wet in the world of dividends to see if they’re a fit for you. Some dividend stocks can be quite pricey. For instance, Apple will cost you more than $100 per share. By investing in stocks under $10, you can instantly gain value, add stability to your portfolio and start receiving passive income.
Increase your passive income stream
Purchasing a monthly dividend stock under $10 is an inexpensive way to add to your investment portfolio. But it can also increase your passive income stream. Passive income is money that you make with little to no effort. It’s often earned automatically.
Let’s say you invested in a monthly dividend stock that yields 5% of the stock price each month. If the stock were worth $10 at the end of the month, the company would then pay you a $0.50 dividend yield. This is money you earned simply because you owned the stock.
That amount may not seem like much, but imagine that the stock’s valuation increased to $100 over the course of the year. That would give you a monthly dividend yield of $5. And that’s if you only owned one common share. If you had purchased multiple shares last year, you’d earn this dividend payout on each one of the shares you own. If you owned five shares, you’d get a monthly payout of $25. Again, this is passive income you earn each month just for purchasing a stock.
Grow your profits
Additionally, dividend earnings increase your profits if you decide to sell your stock when the value increases. Let’s say that you purchased the stock for $10 and it grew to $100. If you sold it at this point, your $90 profit would be enhanced by all of your dividend earnings. However, upon selling, you’d no longer own the share, so you wouldn’t earn future dividend payouts.
As a disclaimer, the above example is not typical. Stocks don’t have much of a track record of increasing from $10 to $100 in a year. We used it as an example to demonstrate how stocks work. As we’ll detail below, there is a risk that comes with investing in stocks that you should be mindful of before you get started.
It’s also worth noting that your dividend payout may not necessarily be in the form of cash. Some companies pay dividends in additional shares. This could be particularly beneficial if investing is a part of your long-term strategy and you think the value of the company is going to increase over time.
How can monthly dividends be a part of your investment strategy?
If you’re considering purchasing monthly dividend stocks under $10, it’s a good idea to talk with a financial advisor first.
Whether you need help managing your investments or just want some professional guidance, a financial advisor can help you find dividend stocks that meet your:
Overall investment goals: What do you want to get out of investing? Are you looking for high-yield dividends to provide enough cash flow to pay your monthly expenses? Or are you looking for growth stocks, which have a history of offering dividend increases and can help you reach your retirement goals?
Risk tolerance: How much of a chance do you want to take? Are you worried about short-term volatility in the market? While stocks are some of the riskier investment opportunities, dividend stocks can be a bit safer than other types of stocks. Their regular payouts (monthly, quarterly, or yearly) can add some stability to your portfolio.
Personal beliefs: How do you want to invest your money? Perhaps you’re partial to large tech companies, like Amazon or Apple. Or, maybe you’re drawn to particular sectors, like healthcare, energy stocks or real estate investment trusts (REITs).
No two portfolios or investment strategies are the same. A financial advisor can help you better understand the fundamentals of your investment strategy, find the top dividend stocks that meet this strategy and maximize your total return.
The right dividend stocks could help you reach your financial goals
Even if your long-term strategy involves more valuable stocks, you may want to start out with monthly dividend stocks under $10. These stocks offer dividend yields 12 times per year. Depending on the type of payout, you’ll either receive cash, which can help pay your monthly expenses, or additional stocks, which you can use to further boost your portfolio.
Having said that, investing in stocks does come with some risk. Speak with a financial advisor before you get started, so you can understand how cheap dividend stocks fit into your investment strategy. Dividend stocks can add value and a bit of stability to your portfolio, but it’s important to understand the types of stocks you are purchasing and whether they fit your overall investment profile.
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