Who pays more dividends, Apple or IBM?


This month I would like to discuss the importance of dividend yield. The dividend yield determines how much you can earn. At the end of the day our focus is more on income generation than on individual stock prices.

What is a dividend?
A dividend is money that you receive from a company, just for owning their shares. For example, if a company is paying a $1/share dividend and you own 1000 shares, you will receive $1000 for as long as you own those shares and as long as the company continues to pay the dividend. The dividend gets deposited automatically into your trading account, you can spend the dividend if you wish or re-invest it into more dividend paying stocks.

What is dividend yield?
Dividend yield is the company's annual dividend divided by the share price:

The calculation is really simple, but you don't even have to calculate it yourself, the dividend yield is available on any website that provides stocks quote (Yahoo Finance, Google Finance, MSN Money). Let's take a look at the dividend yield (from Google Finance) for Apple and IBM:

As you can see from the screenshots above the dividend yield for Apple is 0.62%, and for IBM it's 5.07%.

How much can I earn?
The dividend yield tells you the return on your investment as you hold on to your shares, regardless of the stock price, you will continue to receive dividends from the company as long as:
  • you continue to remain a shareholder
  • the company continues to pay the dividend
In this case IBM has a dividend yield of 5.07%, that means you will receive each year in cash 5.07% of what you invested. Suppose you had $10,000 to invest, all things considered equal is it better to invest in Apple or IBM?:

As you can see from the table above a $10,000 investment in IBM will provide you with $507 each year in cash, the same $10,000 invested in Apple will provide you with $62 each year.

A $507 return may seem small at first, but remember quality dividend stocks have a history of increasing their dividends each year. Each dividend increase puts more money into your pocket. Apple has had 7 years of consecutive dividend increases, and IBM has had 24 years of consecutive dividend increases.

Concerns about dividends?
Here are the top three questions I always get when it comes to dividends:
  1. Why are dividends important, they seem so insignificant (Apple's dividend is only $0.82 a share)?
  2. Dividends are not guaranteed, so how do I know I'll get paid?
  3. What happens to the dividend when the stock price drops?
I answer all 3 questions above in a short YouTube video I produced, you can watch the video here.

Is financial freedom possible with dividends?
Yes, financial freedom is possible with dividends. By starting to invest early you can build a portfolio of stocks that will provide you with growing passive income each year. The dividends will eventually cover your living expenses, without dividends you are only hoping for the stock price to go up. But, hope will not cover your living expenses only dividends can do that.

Should I just go out and immediately invest in dividend stocks?
No, dividends are really important but they only make up a part of the 12 Rules of Simply Investing. A stock should pass all the 12 Rules of Simply Investing before you consider investing in it.

I'm here to help

I can help you to start investing today, why re-invent the wheel when you can learn from my 20-years of being in the stock market. I've witnessed first hand the ups and downs of the market, and I know what it's like to start investing your hard earned money. I created the 12 Rule of Simply Investing to help you get started right away, so you don't have to wait on the sidelines any longer. The sooner you start investing the sooner you will be on your path to financial freedom.

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