Build Your Wealth with Dividend Investing
One of my goals in life is to build wealth with passive income to let me do whatever I want whenever I want. To do this, I invest in assets that will pay me for owning them. Commonly, this is seen with real estate. Another way to do this is through dividend investing. Dividend investing allows you to get paid on a regular basis for no other reason than owning a piece of stock.
What is a Dividend?
A dividend is a kick back that companies provide to shareholders. This means if you have a share of the company’s stock, you are entitled to a certain amount distributed by the company. For example, if the company is issuing a dividend of $1 to their shareholders, then you will get $1 per share of the company you own. If you have 100 shares, then you will receive a $100 dividend distribution. This money typically comes from the companies profits.
Does No Dividend Equal Bad?
The short answer to this question is no. Not all companies offer a dividend. Many companies use their excess money to further develop the company. This can be seen in companies like Tesla or Amazon. Instead of sharing their profits with shareholders, they reinvest that money into improving the business. Many companies that offer dividends are well established companies, like General Electric, Ford, or Coca Cola. These companies aren’t necessarily focused on making game changing advancements in the market, so they’re more likely to share their profits with shareholders.
What Companies Should I Invest In?
This is a loaded question of course. You should do your own research into companies and look at the key metrics before investing. But, before looking at what stocks to invest in, you need to consider the level of risk and what type of wealth you’re trying to build. Just like in real estate, there are two ways to make money in stocks. You can make money through dividend distribution. This is a monthly, quarterly, or annual cash flow that you can put into your account. The thing with these stocks is they are usually stable long term companies that wont see much price volatility. So, with that said, you may make money on the distribution, but the stock price wont rise as fast in the long run.
The other way to make money is through the increased value of the asset. When you buy a stock for $10 and it goes up to $20, you can sell and make $10. Stocks with high potential for increased value typically do not have a high dividend, if they do at all. There are many companies, like Apple, that are innovative enough to have increased price per share while also having a dividend.
High Dividend Caution
There are many stocks out there that offer really high dividends and you may think they’re perfect. But, be cautioned. Stocks that have very high dividends tend to see a downward trend with their stock price. I had a stock that paid over 1% a month, but the stock went down 2% per month. So, I ended up losing a bunch of money before I realized this was not a great investment.
I have investments in stocks like QYLD that provide 1% per month dividend by selling covered calls. There is a lot of risk with this, but it seems to level out while allowing me to reinvest with dollar cost averaging. Historically, the price has followed the NASDAQ, so if it continues, the stock will appreciate while paying a good dividend.
Overall Works To Build Wealth
Dividend stocks are a great way to purchase assets that pay you on a regular basis. This is exactly what Robert Kiyosaki preaches in Rich Dad Poor Dad. You should buy assets that will pay you money over time. But, consider the lifetime trend of the asset in value. If you’re never going to sell the asset, that’s one thing. Eventually, stocks will likely be sold, so make sure you’re not losing more money that your getting in distributions.
Disclaimer
Once again, I am not a financial advisor. These tips are some things I have validated with my own personal experiences. If you feel you need more personal advice, please consult a professional financial advisor. Dont forget to check out the Book List for published authors on this topic!
