When I was in the Navy, a fellow sailor tried to sell me on a mutual fund.  I asked how he made his money, and he said he got three percent of what I gave him to invest.  I thought that over and realized I had absolutely no knowledge whatsoever when it came to investing.  At the library I picked out a book by Mark Skoussen on mutual funds; he wrote mutual funds charge investors when they buy shares, known as a front-end load, or if they sell shares, known as a back-end load.   He recommended a company that had a no-load policy, (front or back), and how to invest without a broker/salesman.  My first investment was in a no-load mutual fund, and I’m with it to this day.
Then I read about Warren Buffett, and Peter Lynch.  When the internet blossomed, I learned they were gurus, but they had big bucks.  What’s a poor sailor to do?

What Is a Dividend?

I learned about investing in companies that offered dividends to stockholders.  To understand a dividend, you must first understand why investors buy stocks. Shareholders have two rights. They help elect a board of directors to run the company, and they are entitled to a share of that company's profits.  If a company declares a 25-cent quarterly dividend and you own 100 shares of that company, you will receive a $25 payment. If that payment remains consistent for a year, you would be paid $100 just for owning those 100 shares.  Some companies may conserve cash by offering payment in the form of additional shares of stock.

How Does a Dividend Work?

    You buy a certain number of a company's shares. For example, let's say you own 100 shares of Chevron (CVX) stock.  The company announces it will pay out a quarterly dividend.  In the case of Chevron, the oil giant said on Jan. 29 it would hand out $1.29 per share to all holders of common stock.  Determining your share of profits, you multiply the dividend by the number of shares you own.  In this example, you would receive a quarterly payment of $129 for your 100 shares.  The company generally sends a check, or make a payment to your brokerage account.
Some companies offer what's called a dividend reinvestment program, or DRIP. This allows you to reinvest the payment back into the company's stock for a small brokerage fee, or no fee, and sometimes at a discount.  My foray into the stock buying game uses only DRIP companies.

There are several important dates to keep in mind when determining whether to buy a dividend stock. In the Chevron case, the company said it would make the payment to shareholders of record as of Feb. 15. That means anyone who owned the stock as of that date received a payout.

E-Trade Financial notes the record date is important for stock buyers and sellers alike. The ex-dividend date is a business day before the record date. Then an investor can buy a stock but won't receive the most recent payout. To compensate for this, the cost to buy a share is usually reduced.  But, if you're looking to sell — but still want to get the most recent quarterly payout — you must wait until after the ex-dividend date to do so.

Chevron stock trades around 120. Chevron has an annualized yield of around 4%. That far exceeds the 1.9% average yield for S&P 500 stocks, as noted each day in the General Market Indicator Charts feature at www.Investors.com.     www.Dividend.com says the highest-yielding dividends often come from basic materials stocks — like oil and gas, metals, chemicals, construction and wood/paper products — followed by financial stocks. On average, they yield 4.96% and 4.18%, respectively.

It's important to keep an eye on unusually high yields as that can be a marker the payout isn't sustainable.

Interested in investing in the stock market with DRIPs?     Go to https://www-us.computershare.com/investor and open an account.  Look around the site and you will find both DRIP and regular companies.  Some companies will accept less than $100 to invest. 

Now that the Dow-Jones and Standard & Poor indexes are bottoming, if you can shake loose a few dollars, you could be on your way to building a sound portfolio.