How to Create Monthly Income With Dividend Paying Stocks

Gaining financial security is not just about earning a good living. It's about creating a steady stream of unearned income that keeps paying you even when you are not working for your money. Dividend stocks typically pay out on a quarterly basis. By investing in as few as three dividend paying stocks, you can develop an investment portfolio that provides you with a check every month that you don't have to work for.

Step 1

Define your financial goals. These are likely to change as you age, so you probably want to revisit this step from time to time. Consider such factors as the amount of risk you are comfortable with and whether there are any social or moral issues that might influence your choice of investment. This can narrow the field for your investment research.

Step 2

Research the companies whose stock you're considering. Look for companies with a long track record of paying dividends in both good times and bad. These are most likely to be mature, well-established firms or public utility companies. Contact each company's investor relations department and request a copy of their annual reports over the last few years. Check to see if they have a history of increasing dividends, or if they have lowered or suspended dividends. If they have, find out why. Look at their history of earnings and cash flow. Investigate their current management and their outlook for the future. Determine their cycle for paying dividends. Find three companies that meet your qualifications that pay dividends on different cycles. You need one company that pays out in January, April, July and October; one that pays in February, May, August and November; and one that pays in March, June, September and December. This will spread your dividend payments throughout the year.

Step 3

Purchase your stock. If you don't already have an investment broker you will need to open a brokerage account. Regardless of whether you choose a full-service broker or an online firm, the new account application typically requires basic personal information such as your name, address, social security number and contact information. You might have to provide a government-issued identification such as a driver's license or a passport to comply with provisions of the Patriot Act. Once your account is active you'll likely need to deposit sufficient funds into your brokerage account to cover the transaction. Instruct your broker to buy the stocks you've selected. You have the option of buying at the market or of putting in a limit order for highest price you are willing to pay for the stock.

Step 4

Determine how you want your stock held. Some companies offer to hold your stock in registered form with the company. You are the registered owner and they will send you the quarterly dividends, but you won't receive a stock certificate. The company will send your dividends to your broker, who will put the money into your brokerage account and might automatically sweep those funds into an interest bearing account. You can usually take possession of the stock certificate and the company will send your dividends directly to you.

Tip

  • Financial experts might argue over what constitutes a properly diversified stock portfolio, but most agree that three stocks is not sufficient. Once you've bought your first three stocks, consider purchasing additional dividend paying companies in different market sectors to provide additional protection from downturns in the market.

Warning

  • All stock investments involve risk. Dividend payments are not guaranteed. Stock prices can decline. You could lose some or all of your investment.

About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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