Character: The Dividend Investor

Level 1

Thinking about dividend investing


Level 2

Actively learning about dividend investing


Level 3

Bought first dividend paying stock


Level 4

Bought 10x well-researched dividend paying stocks


Level 5

Own $10,000 in dividends


Level 6

Own $50,000 in dividends


Level 7

Own $100,000 in dividends


Level 8

Own $200,000 in dividends


Level 9

Dividends can pay for your monthly expenses


Level 10

Dividend Educator - actively spreading knowledge to the community

Character Description:

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

3. Strengths:

  • 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.

4. Weaknesses:

  • 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.