How to Invest $1,000 in Stocks that Pay Dividends
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It was over 8 years ago when we made our first dividend stock purchase. We had saved up $1,000 in one of our brokerage accounts and wanted to invest in a stable company that would pay us a dividend.
We ended up buying 25 shares of Consolidated Edison (ED) for $39.10 a share. Our total investment was $977.50.
Today, that investment has grown to over 36 shares of the stock with dividend reinvestment. Our yield on cost for this stock is over 10% and this company currently pays us over $98 a year in dividends.
Not the most sexy of investments but an absolute solid buy to start our portfolio.
Investing $1,000 Back Then
In order to invest $1,000 back then, there were limitations.
First … in order to keep brokerage commissions and fees low, we had to save up a bunch of funds before investing. We bought our ED stock through our Fidelity account and paid a commission of $7.95.
That turned out to be about 0.8% of our investment spent on commission. That is not too bad, but it can be a lot cheaper today.
The other issue we faced 8 years ago was that we couldn’t split our dollars up into multiple stocks. That is unless we wanted to pay really high commissions.
Splitting our investment into 2 stocks at $500 each would cost double the commission ($7.95 + $7.95). So diversification was difficult for us with only $1,000 to invest at a time back then.
Investing $1,000 Today
Investing $1,000 today is a lot simpler if you ask me.
The reason is that zero commission brokers like Robinhood and LOYAL3 have changed the way we can invest. An investor can take that same thousand dollars today and split it 10 different ways without paying any fees.
So, you could hypothetically invest $100 in 10 different stocks through a LOYAL3 account. That isn’t to say that you should do that … just that you can do that.
This is huge when it comes to diversifying your investments.
We use both our Robinhood and LOYAL3 accounts today to help build our diversified portfolio one month at a time. The beauty is that we are not paying any extra on commission.
Note – each of these brokerage accounts have limitations, but I believe are worth the trade off.
How to Invest $1,000 in Stocks (Today)
As I mentioned before, the landscape for investing has changed. With zero commission brokers, the barriers to entry are small for investors.
In fact, you can invest as little as $10 through LOYAL3 today by purchasing partial shares of stock!
How we invested $1,000 over 8 years ago looks much different than how we would do it today.
Below is a quick summary of how I would invest $1,000 today … if I was just starting out.
#1 – Screen for Top Dividend Stocks
The first thing I would do is start a dividend stock screen. If you want, you could follow my list of 8 steps I use to narrow down my list of potential stock buys.
This stock selection process is by no means a full proof way to select stocks. However, it does help me reduce my risks when picking stocks.
The process also helps me from over paying for stocks … most of the time.
Here is a recap of the steps I use every month to review quality dividend paying stocks.
- Download US Dividend Champions Spreadsheet – found here
- Look for stocks listed as Champions, Contenders, and Challengers
- Set a filter for stocks with a dividend yield >= 2.5%
- Set a filter for stocks with a payout ratio <= 60%
- Set a filter for stocks with a P/E (TTM) <= 20
- Set a filter for 10 Year DGR >= 6%
- Screen for stocks with at least 10 years of consecutive dividend increases
- Look for remaining stocks that may be trading at a discount via the Graham Number
#2 – Open Up a Robinhood Account
You can open either a Robinhood or LOYAL3 account … or both. Of the two, I would pick Robinhood first as they allow you to buy all US traded stocks.
LOYAL3 on the other hand only has a select list of stocks that you can buy from. There are however some really great dividend companies you can pick from including – Target (TGT), Walmart (WMT), and McDonald’s (MCD).
Robinhood just gives you more flexibility is all.
#3 – Purchase 3 or 4 stocks Split Evenly
Instead of putting all your $1,000 investment into one stock, I would personally diversify across 3 or 4 different companies.
It ends up coming down to your comfort level for diversification. I just prefer to spread investments out each month.
These zero cost brokers make investing small amounts of money possible … which helps the small investor diversify.
#4 – Repeat Next Month
So you have invested your $1,000 this month in some really great companies. Great job.
Now it is time to keep this momentum going and invest again next month. And the month after.
Remember that in order to get ahead on the path to financial independence, you need to put your money to work earning more income.
Don’t stop after your first investments. Even if you don’t have $1,000 each month, you can still invest.
Remember … LOYAL3 will let you invest as little as $10!
There is no excuse to not be investing!
Compared to 5 or 10 years ago … investing $1,000 in stocks is easy today.
Even if you don’t have a thousand dollars to invest, you can invest small chunks of money. This is possible through zero commission trades using platforms like Robinhood and LOYAL3.
These brokers have made it possible for small investors to diversify their money across multiple stocks. All this without paying any commissions.
What are you waiting for? There is no better time to get started investing in dividend stocks!