How to Earn Money from Dividends

 To earn money from dividend is great way. It is your passive income, your duty is to invest high dividend company and from time to time, these companies will transfer your earning in your account. It is so easy. Your this earning, you can check anytime when it will credit to your bank account even you are enjoy your holiday with your family.  

Now come the Simple Steps to Earn money from Dividends 

1. Choose Best Companies Who Provide High Dividends to his Shareholders

First of all you should know that why companies issues shares. Its aim is to collect money at lowest cost. If same money, company gets from banks, it will be costly, because company must pay the interest. But if they issue the shares, it is not compulsory to pay dividend every month to shareholders. Company will pay the dividend if company earns the money and will share with its shareholder partners. It is the basic aim of companies to sell the shares in stock market but main questions, why shareholder buys the shares. Why hard earned money invests in the shares instead fixed deposits in the banks. 

It has two reasons 

(A) Earning from Price Appreciation 

one is price appreciation, if company will grow, your share price will grow. 

For example, I invested Rs. 22951 in 2021 and 2022 and today value is Rs. 30489

If today, I will sell these bajaj finance company share, I got earning of Rs. 7537 (32.84%) Just in two years. It means, it gives me return 15% + per year 

(B) Dividend Earning 

second is dividend, if company will earn big or has the surplus profit reserve, you may earn dividend big. Dividend is just part of earning of company or reserve surplus of company which is given to shareholders. 

Same company has given me Rs. 220 earning in the form of dividends. 

Now learn two important ratios

1. Dividend Payout Ratio

It is important to company point of view instead shareholder. IF company earns Rs. 100 crore and if company decided to share its 30% with shareholders. It simple means out of 100 profit, company pays only Rs. 30 

2. Dividend Yield Ratio

It is very important to shareholders. It tells the % dividend on one share. 

Formula of Dividend yield ratio = annual dividend per share / price per share * 100

For example bajaj finance have given me dividend of Rs. 20 per share and price per share is 7622.35

So, dividend yield is = 20 /7622.35 *100 = 0.26% 

Now, I told this dividend yield ratio is important to shareholder because shareholder can compare two company's dividend yield

if both company is giving different dividends 

If a company is giving dividend per share Rs 30 and company be is giving RS. 40 per share 

but a company's dividend yield is 50% and b company's dividend yield is 40%

It means even b company's dividend per share value is more than a company but my invested money if same

and it will 100

then a company is giving me Rs. 50 out of 100 invested money and b is just giving Rs. 40 out of my invested Rs. 100. So, with dividend yield, I find a is best company for paying dividends to me

Will We Choose High Dividend Companies

For this, you also see long term your share price appreciation, if share appreciation is good and dividend yield is high, then we can choose high dividend companies but if long term, share price is decreasing and dividend is high yield, then no value because if tomorrow I will sell the share, I will get less my asset of shares from sale. So, we have to take this decision very smart. 

Do all companies pay Dividends?

No

they can do 5 this with their profits

1) They can pay old debt with this

2). They can reinvest the money

3) They can buy-back their own shares

4) They can convert it in their surplus reserve

5 ) They can share it with their shareholders through dividends

Following are the Indian High Paying Dividend Companies because their Dividend Yield ratio is high

Top is vedanta. It is giving Rs. 25.93  annual dividend on your every Rs. 100

learn other list company also in screenshot

Remember the Risks If you buy the Shares of High Dividend Paying Company 

1. If you are receiving govt. FD 7.25% but dividend  yield is 10% per year but if same company's share price has halfed, then it is bad than from your govt. less interest FD. So, in future, company's share price may decrease.

2. In future, company can stop or less the dividend.

Last year vedanta May 2022 per share dividend payment was Rs. 31.5 but current year may dividend payment was Rs. 18.5. See screenshot, so nothing is fix in dividend payment.There will always risk. 

Conclusion

If you have to earn money from dividends, you choose company which is 

a) Growing in 5 years through its price increase

b) High ROE

c) Middle yield is enough 

for example HCL has 5% dividend yield but its share price has increased in last 5 years