Dividend Investing

What is Dividend Investing?

So you like the idea of passive income from Dividend Investing? Earning money while you sleep? Then look no further.

Dividend Investing is a great way to start making your money work for you instead of the other way round. A Dividend to put it simply for all to understand is spare money a company pays you for holding its stock.

Essentially it is a reward for holding onto said companies shares. For example, let’s say I have 10 shares of a company, they may pay a 5% dividend per share. Obviously depending on the share price, this can vary greatly.

Most dividends are paid on a quarterly basis or 4 times a year. Although, this is not always the case. Some companies pay twice a year, other pay monthly. Here are a couple of example companies and the dividend they pay to their shareholders.

CompanyTickerDividend YieldPayout
Realty IncomeO3.77%$2.73
PepsiCoPEP2.77%$3.82
AT&TT5.33%$2.08
FordF6.39%$0.60

Four examples above of different dividend yields (the percentage per share they payout). Realty Income pays its dividend on a monthly basis although the figure in the payout column is annualised. So the $2.73 per share is divided by 12 months to give $0.22 per share per month. PepsiCo, AT&T, and Ford all pay quarterly so four times a year. Just divide the payout figure by four then times that by how many shares you own to get your expected dividend payout.

While the above numbers look small, the power of compounding over time means that they will increase exponentially. Especially when more and more shares are added as and when you can afford to or when they are on ‘sale’. A sale, in this case, is when the market dips so you get the shares for a discount.

Dividend Investing starts off slowly and will build over time. Unless of course, you have lots of capital to deploy in one go then you can start reaping the benefits faster than most of us. Most people need to play somewhat of a long game with investing, we are not millionaires just yet.

Dividend Payouts

As discussed most companies have a dividend payout schedule. Meaning that they will either pay monthly, quarterly, bi-annually in some cases. If like me your goal is a passive income stream on a monthly basis then you can go the route I have gone.

Dividend Investing in a range of companies with overlapping payout dates. For example, I have some that pay monthly, others that pay quarterly but overlap. Doing it this way means I should get consistent dividends every single month. Companies can and do alter the dividend payout date so it’s not 100% but it is better than having all dividends paid in the same month. From time to time companies may raise or lower the dividend or in rare cases even suspend altogether.

Based on this, it is recommended you have several companies in your portfolio paying dividends, hopefully from totally different industries as to not be affected by each other too much.

Not only do we benefit from the dividends, with dividend investing – we also can benefit from capital appreciation as with any other stocks and shares as well. Of course, not all stocks go up – that is why it is important to be diversified in many fields within your portfolio so you can soak up any losses.

Dividend Reinvesting DRIP.

Many brokers will have DRIP program or Dividend Reinvesting Programs – As you might have guessed they automatically reinvest your dividends to buy fractional shares or full shares depending on the cost of the share and your dividend. This is very powerful as it is another example of compounding your money. Each time your dividends allow you to buy another share then naturally your next dividend payout is increased.

As you might imagine this will snowball. Netting you more and more shares and bigger dividends each and every payout date. This is not even including the growth that most stocks will see over the long term. If your platform offers a DRIP program or just Fractional Shares then I strongly suggest you make use of them. My current platform for individual stocks is Trading 212 Click the link and signup with a deposit. We both get a free share up to to the value of £100. I also use Vanguard for its low fees and a great range of ETFs. Currently, I have shares in the S&P500 index and FTSE All-World High Dividend Yield UCITS ETF. Both of these are dividend-paying on a quarterly basis.

Passive Income

My aim, for now, is to generate $250 a month in passive income. I plan to try and do this within a year. I no it is a big goal but why set a lower easy to reach target! So far my plans to reach this goal include.

This blog with Google Adsense – currently just a few cents are being generated but again hopefully over the course of a year this will compound as well as more traffic comes to the site.

My Dividend Investments and my Vanguard account both generating growth and dividends monthly. I also have a Youtube Channel that is growing every day. I do not think I will reach monetization on the channel though but can still display affiliate links and drive traffic to here through the channel. Again I’m no illusions and reaching that goal of $250 a month in a year is a big ask but why not dream big? I made a post on Passive Income displaying my initial progress with Index Funds HERE.

Stick around for regular updates to track my progress – Currently, my Youtube channel has just 29 subscribers in a little over a month. I plan to try and make three videos a week to keep the momentum going. I have created a Google Sheets spreadsheet to help track my Dividend Payments and will post regular updates so you can see if my plan is working. Up until this point, I had not really thought about trying to generate extra income let alone passive income – now I’m determined to make this work and I hope you are too. Come along for the ride.

Thanks,

Sean

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