7 Steps to Receiving Monthly Dividend Income Checks
By Howard Feigenbaum
Dividends are an excellent source of income. A reliable income is important for your financial independence. Here are 7 steps for setting up an income stream and receiving a monthly dividend check.
1. Determine the amount of monthly income you want to receive. How much money do you want or need each month? Set a goal that you believe is reasonable. You can always adjust the amount as you go along. Once your mind has embraced the idea, you will be able to take the steps necessary to reach your goal.
2. Choose a mutual fund that pays monthly dividends. A mutual fund that specializes in monthly dividends is helpful for several reasons: a. the fund objective agrees with your long-term goal, b. the fund has professional management to oversee the investment portfolio and c. you have a larger and more diverse pool of securities than you can provide for yourself, an advantage for mitigating risk.
3. Estimate the number of shares you need to produce your desired monthly dividend income. An income mutual fund distributes dividends to participants based on the number of shares owned. For example, if you own 50,000 shares of a fund and the fund pays a monthly dividend of 2 cents per share, you would receive $1,000 per month. Of course, dividend payment amounts are subject to change. However, you can get an idea about how many shares you might want based on the fund's history of dividend payments. The prospectus and supplemental investor information should have a record of fund performance. Keep in mind that the historical performance is not a prediction of future results.
4. Begin investing an affordable amount. If you are new to investing or if you are not familiar with a particular fund or if you are on a tight budget, it is a good idea to begin building shares with a small deposit each month. Most mutual funds have an automatic investment plan which allow continuous monthly investments made by transfer from your checking or savings account. The minimum amount for automatic investment plan may be as low as $50 per month. By starting small you can become accustomed to the operation of the investment fund while moderating risk.
5. Reinvest dividends and capital gains. One of the best features of a dividend income fund is that you can reinvest dividends and capital gains by purchasing additional shares with the proceeds. In addition to your monthly investment, your reinvested dividends are continuously building additional shares in your account. These additional shares also pay dividends. Dividend reinvestment allows the number of shares in your account to continue growing, even if you stop contributing to the fund.
6. Increase monthly deposits over time to reach desired goal. Once you see your share balance growing, and if your budget allows, make periodic deposit increases. You will be encouraged by reviewing your account statement where you can see the dollar amounts of dividends distributed each month.
7. Request payment of dividends. Whenever you are ready, you can ask the mutual fund to stop reinvesting the dividend distributions and make a monthly cash payment to you. You will enjoy the satisfaction of knowing that each month there will be a payment to your bank account or a check in the mail from the shares you have accumulated.
Howard Feigenbaum is Registered Principal and Owner of Sharemaster, a Broker-Dealer firm that specializes in monthly dividend income funds.
"Do you know the only thing that gives me pleasure? It's to see my dividends coming in." - John D. Rockefeller
This article is a general discussion of the subject and is not intended as a solicitation or specific investment advice.
Copyright 2011 Sharemaster