Dollar Cost Averaging and Dividend Stocks
One of the best ways to build up a dividend portfolio is to make use of dollar cost averaging. This technique allows you to build up your income portfolio slowly, and it is something that almost anyone can participate in. While you may not see huge inflows at first, over time you will notice that you begin receiving more and more income from your efforts at dollar cost averaging.
Dollar Cost Averaging
When you engage in dollar cost averaging, you can buy partial shares of a dividend stock. This means that if you have $150 to invest each month, and the average share of a stock is $60, you will get 2.5 shares of the stock when you buy. If the stock drops to $45, your next purchase will get you 3.33 shares. You end up with more shares. This means that your next dividend payout, which is based on the number of shares you own, will be bigger.
Of course, the flip side to dollar cost averaging is that when the stock price goes up, your money buys fewer shares. But, over time, it tends to even out somewhat. Besides, the main advantage to dollar cost averaging is that allows you to start an income investing portfolio without needing a large chunk of capital.
Watching Your Dividend Portfolio Grow
At first, you will not see great results. Your quarterly income from your dividend portfolio will generally be quite small. Many people in the early stages of dividend income portfolio often reinvest their dividends to boost the number of shares that they can buy. (For the long term, a DRIP program can lead to automatic reinvestment of your dividends.) This can speed up the pace at which you build up your portfolio. Later, you can start using your dividend payouts to meet your regular expenses.
In order to effectively grow your dividend portfolio, it is a good idea to figure out how much money you can invest each month. Make it a regular habit. Whether you can invest $50 a month to start, or $500, the idea is to begin building your portfolio. As you find ways to increase your month investment, as the number of shares you have increases, you will begin seeing larger dividend payouts. Eventually, you will be able to create a relatively stable source of income from your investments. At some point, you might even be able to stop considering your dividend portfolio as supplemental income, and think of it as your “regular” income.