Why You Should Start Dividend Investing
Welcome back guys it’s been a while!
Today I will be talking about dividend
investing including my experiences
With dividend investing The benefits of dividend investing Also how you can compound
Your money to series wealth And eventually live off your dividends.
Aswell as all the do’s and
dont’s.
So What is a Dividend ?
A dividend is a portion of a
company’s
Earnings distributed out as cash To it’s shareholders, so basically a Reward to them for holding shares Of a company.
These are either distributed either Each Quarter, Semi annually Or once a year depending On the company.
Dividend Yield
So now the technical stuff! The
dividend yield
Is the stocks annual dividend
payments
To it’s shareholders dividend by its Current share price, for example
if a company paid an annual dividend of
£5 per
share and its shares currently cost £150, its dividend yield would be 3.33%.
Of course if you are trading in
different countries the stock price and annual
dividend payouts Will be different due to FX (foreign exchange fees) which will e have here in the UK When trading US stocks.
The Dividend Trap!
The dividend yield trap can have many
different signs, one of them is when a companies dividend yield is too high
this isn’t the main way of detecting whether a dividend is unsustainable or
not.
for example REITS have high Dividend yields due to them
Having to pay out a large percentage of their earnings.
Usually stocks with lower share prices and higher dividend
yields say over 7% generally are considered bad.
Also another tell tale sign is if a company Has excessive debt, the more likelier it is They will have to cut their dividend payout ratio in order to pay off debt faster.
Most companies have some form of Debt, but some have more than
Others and are able to manage it better in Due to having higher revenue and earnings, Or less expenses in general.
What Are Good Dividend Stocks ?
If you Are a beginner to dividend investor And are looking what good dividend stocks
To invest I would look no further than The dividend kings.
Dividend kings are companies in the
S&P500 who have had over 50+ years of consistent dividend paying and rises.
So these companies are big blue chip
companies with great payout ratios,
solid dividend yield and a great price
to earnings ratio also.
You must’ve have heard of a lot of
these companies they have been around for
A very long time. A few companies that
spring to mind are:
- Coca Cola
- Colgate Palmolive
- Procter and Gamble
- 3M
- Johnson and Johnson
- Hornet foods
There a 30 companies In Total In many different sectors.
I won’t name them all but they are easily findable within the internet.
Slow At First...
One of the things dividend investing is not Is a way to make a quick buck, it takes
A lot of time, patience and consistently To grow a dividend portfolio and
Your dividend income with that.
It all Depends on your portfolio size And dividend yield on how much you
Will earn in dividend income.
for example My dividend portfolio is worth £3800 Currently and I make £137 in annual dividend income with the overall Portfolio yield being at 3.61%
To work out your own portfolio yield You need to divide your portfolio's
Annual dividend income by its total value The multiple the results by 100
to know the yield
percentage.
Although your first few months
receiving dividends maybe slow (it was for me ) it will
Pick up quicker than you think.
In my first few months I averaged around £1.20 I Dividend income
which at the time I though was incredible.
But as the months passed by and I
consistently put bits of money
Into the portfolio each month I saw the dividends increase!
Okay they still aren’t life changing, but It shows with patience and consistency
You can grow them quicker than you May think.
A key factor is reinvesting your
dividends back into the company who has paid you,
This is vital as it contributes to the compounding and speeding up of your portfolio growth, along side regular portfolio deposits.
So before you know it you will have the
same amount of cash in dividends
As what you would have with the deposits You make with money from your job!
That’s my first goal to receive in
dividends
Each and every month what I would Deposit my self out of my own money
At the moment I deposit around £200 per month give or take.
So to achieve this goal I would need
around
A £62,000 portfolio size at my current
dividend yield
Which I know sounds a lot but trust me, stay Consistent and dedicated and it will arrive
Much sooner than you think....
The Cons Of Dividend Investing
So as much as i like dividend investing there are some disadvantages that should
be talked about.
Firstly one of the cons with dividend investing is that it is slow to get the ball rolling,
yes i know i mentioned that above, but it could be classed as a disadvantage
for some people as the amount of dividend income you will receive at first
will be small, and for many people they wont have the patience in the early days
of starting a dividend portfolio.
Also a big con when it comes to dividend investing is the fact dividends aren't guaranteed
and can be slashed in half or taken away completely if a company feels like it.
That being said this is usually the case with companies who are paying to much out of there earnings And with an extremely high and unstable dividend yield.
This is why especially as a beginner you are better off investing in solid dividend
kings and aristocrat's who have been growing dividends for 50+ & 25+ years,
these type of stocks will make you feel much safer and able to not worry as much.
I learnt this lesson the hard way as at first I chased the higher dividend yield
thinking that surely that's the better way my dividend payment's will grow quicker!
I was investing in the likes of ford, Imperial Brands And royal Dutch shell
who had high dividend yields over the 7% mark which at first was fine
i received the dividend payment's, i was thinking this is great high yields for the win!
But as the pandemic hit and these companies took massive hits financial the dividends
soon went! either gone completely like ford, or cut in half like shell & Imperial brands.
while this was all happening solid dividend kings and aristocrat's were still paying there nice steady dividends, so the main lesson is don't chase the high yield!! a lesson i learnt the hard way.
Conclusion...
So I hope you all got some value form this I could talk about dividend investing All day !
If you haven’t make sure you check out
my YouTube channel for video’s on all things
Dividends.
Really worthy blog. Every contents are helpful.
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