How Dividends Changed My Life
Dividends are an underrated form of investing. How can dividends make money for you?
Stock market and dividend investing is something not every people chooses to invest in because it is complicated, risky and fluctuates a lot. It is true, stock markets are for those who like risk, fluctuation and many more but there is also another side to the stock market, and that is the side we will be talking about today where you can make dividend income.
First of all, a dividend is a payment that a company gives to its shareholders. Not every company pays dividends, mostly the biggest companies does this like Coca-Cola, IBM, P&G, etc. So, for every share you own, you have the right to get a dividend. However, the numbers are very small. For example, if you own a Coca-Cola stock, it pays out a 3.06% dividend every year for each stock. So that equals to 1.64$ every year per stock you own. Seems small, isn’t it? Because it is but the key takeaway here is to invest long-term. Dividend income is created over the long-term by investing monthly or annually into it again and again and again. So you can just spare 100$ or 500$ monthly, depending on your income and buy more stock every month.
“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
— Warren Buffet
A PENNY SAVED IS A PENNY EARNED
Let’s think: if you can spare 500$ every month and buy Coca-Cola stock with that 500$ (each share is 52.76 as of 21th of November), you’d be able to buy nearly ten stocks every month. At the end of the year, you would have 120 Coca-Cola stocks and about 200$ income every year from Coca-Cola dividend. Every stock has its own pay-out time, Coca-Cola pays this out four times every year, so it divides 1.64$ into four and pays it like that, so, Coca-Cola pays 0,40$ every quarter and it is similar with every other company out there. If you invest your dividend income back to Coca-Cola stock again, you’d have about four more stocks, which means in total, you’d get 206$ annually. This example is just one stock and Coca-Cola has been paying and also increasing its yield for the last 55 years. Warren Buffet, one of the greatest investors and the founder of Berkshire Hathaway has 400 million Coca-Cola shares that bring 640$ million every year (this number goes up every time they buy their stock).
I know, a lot of numbers, a lot of statistics, etc. but believe me, it is pretty simple and what I wanted to show you here is how basic it is but how long it can take for you to reach to $1,000. So, this is not a get rich quick scheme. This is a way of creating cash flow for your future and if something were to happen to your job or anything, you’d have a stable income of cash which is not going anywhere.
However, stocks can stop paying dividends, they can lower their yields, go bankrupt, etc. there is always a risk but, there are ways to avoid this risk. Now, some people (those who are experienced or likes micromanagement) specifically follow the stocks they buy, their price, their dividend yield, the company’s economic growth, etc. and change it according to their wants, needs and the result of their investment. That is very time-consuming and requires a lot of experience where you have to know every single detail about the stock market, dividend-yield, and many more.
“Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard.”
— Warren Buffet
So, you have to be extremely careful with your investing type, you shouldn’t just type “stocks that pay dividends” to Google and buy the first ones you see and think that money will flow in. You’ll never see that money ever again and please don’t do this.
But there are ways to make this automatic and less risky, without too much hassle. If you are new to this or if you just want to put money to your account monthly and let it do the work all by itself, this is what you are looking for, and that is what I want to talk about. Before going into detail, I’d like to say that I am not endorsing any brokerage, nor advertising any. There are hundreds of different brokerages out there that have different aspect and can fill different needs, so you have to be very specific on your brokerage choice because plenty of your earnings could go to secret commissions or anything. But my personal choice is to do this by a bank. Safe, secure and well it could be a little bit expensive but at least you know it won’t go bankrupt or even if it does (which is not possible), you’ll know they won’t hang you to dry because there are measures taken for this.
“If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.”
Now, let’s get into the drill. The automated scheme is simple but there is a variety of it where you can choose between. The main thing is, these are ETF stocks, Exchange-Traded Funds. ETFs are the stock markets and includes a lot of companies within it. Most known are S&P500 and Dow Jones in the USA and these, I believe, provides the best value for your investment, for dividends. But not every ETF pays dividends, you have to find the one that is dividend-paying ETFs. Some examples are; SDIV (Global X Superdividend) with %11.75 dividend yield, DVYE (iShares Emerging Markets Dividend ETF) with %9.38 dividend yield… and the list goes on. These ETF stocks include a variety of companies, so you have to check the companies yourself and choose the one that you believe is worthy of your money.
The key here is that these ETF stocks does the work for you, they follow the stocks, companies, their dividend yield, etc. and they remove the ones they think isn’t worth of investing and put another stock that pays dividends and more secure. However, make sure to do diversification. If you buy ETFs from US markets, buy from EU markets as well. This way, if the US crashes, you’ll be okay with EU or vice versa.
INVEST MONTHLY AND LET IT GROW
Yes. That is it. You now have learned the basics, what is it and how it can make money for you. All you need to do now is to just find the best one that suits your ideas, opinions or anything else and put your money into it every month, let it grow and start getting a good deal of dividend income in a couple of years. But, as I have mentioned it before, this is not a get rich quick scheme. It takes time (years) to grow it into an average monthly income.