Character: The Dividend Investor
Thinking about dividend investing
Actively learning about dividend investing
Bought first dividend paying stock
Bought 10x well-researched dividend paying stocks
Own $10,000 in dividends
Own $50,000 in dividends
Own $100,000 in dividends
Own $200,000 in dividends
Dividends can pay for your monthly expenses
Dividend Educator - actively spreading knowledge to the community
The Dividend Investor is a special type of stock investor that invests in dividend-paying companies. A dividend is a share of a company’s profits distributed to its shareholders – you, the stock investor. Not all stocks have dividends, but you can easily look up the ones that do and have a great track record. You can essentially own shares of a great company that pay you just by owning it.
There are a couple of key points you must understand when investing in dividends:
1. The Role of Dividends
Dividends provide you cashflow, but this cashflow is not as high as real estate
Regardless it can set a foundation that will provide for your lifestyle
So in the OBL Financial Freedom Algorithm, The goal is to use the cashflow generated by real estate and dividends to pay for all of your monthly expenses.
But the question is, how much do you really need for it to make a difference? Let’s do some math.
2. The Math
So on average, a good mix of great companies in a fairly diversified dividend portfolio will yield around 3% annually. There are companies that pay you higher yields, but they tend to have poorer financial statements thus making them riskier for cutting dividends or riskier as an investment in general.
So let’s take an example of $100,000, which is already a lot for the average person. $100,000 invested in solid companies that pay dividends will conservatively yield an average of 3% a year, which is $3000 a year. In monthly terms, that will be $250 a month in cashflow for life.
Dividends are usually paid quarterly
Dividends is a long term strategy, but also has the short and medium term built in. You get paid the whole way and can be a reliable income stream if you invest in great companies with a great track record. There are solid companies that have been paying and/or increasing their dividends for decades and will likely remain that way in the foreseeable future.
If you live off of dividends, a major pro is in taxes. As of 2020, long term capital gains if you are generating less than $80,000 a year in qualified dividend income means you will pay 0% in federal taxes. ($40,000 for single filers).
Dividends are much more liquid and easy to get into compared to real estate.
Low barrier to entry: You could literally invest in one in a matter of a few clicks or swipes
Dividend yields can increase depending on how a company is doing.
Companies can also reduce or even cancel their dividends, but that’s less likely if you invest in the solid companies with great track records.
The average yield from dividends is low and you will need to invest a significant amount in order for the cash flow it generates to make substantial difference, but nonetheless it’s a solid part of anyone’s portfolio.