The Magic of Dividend Investing

Get paid to do nothing other than set up an account, which takes 15 minutes, and auto buy one single stock, which takes 3 minutes.

In less than 20 minutes you can automate all your finances for the next few decades. How sweet is that?

It’s worth noting that this is one of many options. Usually, the first investment people should make is with their 401k, IRA, or TSP account, at least up to the match that you receive.

After that many people need to decide where they personally want to invest their extra dollars, which can get quite complicated and is usually when people fall into traps like options trading, or day trading, or get rich quick schemes like Dogecoin or the other infinite “you’ll 100x your money in 10 days” schemes, which sometimes work temporarily but usually fail.

Dividend investing is a tried-and-true method that has worked for hundreds of thousands of people as their primary way of investing. Retirement accounts are almost always some form of dividend investment as well.

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What’s so good about dividends?

  1. It allows you to buy more stock without spending any more money
  2. You can get paid monthly and have extra income
  3. It’s very easy to pass your portfolio to your family and children
  4. Extra compounding
  5. You get higher dividends as the price of the stock increases

1. It allows you to buy more stock without spending any more money

What exactly is a dividend?

It’s the company paying out some of its profits to the people who own the company, called shareholders.

Every exchange that I have seen, like Robinhood, Charles Schwab, and WeBull, have the option to re-invest dividends. This means that when a company pays you a dividend, instead of the money going into your account as cash, it will automatically be used to buy more shares of a company.

The beauty of this is that without doing anything on your end, without even investing more money, you can accrue more shares of the company that is paying you dividends which of course will allow you to accrue even higher dividends next cycle (payouts usually happen montly, quarterly, or semi-annually).

If you combine automated weekly purchases of an index fund that pays dividends AND you re-invest dividends, your portfolio will grow into a massive, cash flowing machine.

2. You can get paid monthly and have extra income

Re-investing is what you should do during the growth phase of your investment life. This is usually between 18-65 for most people, but if you want to retire younger, you will have to calculate how much you need to save and invest to reach that retirement goal.

After you are out of the growth phase of savings and investing, you will now want to live off of your massive investment portfolio, so what do you do? For a lot of people, they will have to start selling stock to pay their bills. Getting thousands of dollars per month in income without selling stock is very difficult which is why optimizing a portfolio early and focusing on dividends can be a great strategy.

Selling stock is not enjoyable, and when you sell stock you are literally getting rid of your money-making machine. Building a portfolio around dividends will allow you to get paid each month without having to sell your shares. This can effectively make it so you can live forever and never run out of money which is something we all dream of.

3. It’s very easy to pass your portfolio to your family and children

Let’s be honest, most people do not find investing interesting. You, reading this, may even find investing quite boring, I’m not sure. It’s important to think about the tragedies of life. This includes losing your job, a recession or depression in the market, an illness or injury, and the worst of course would be dying.

Are you the only person that knows how to invest in your household? Could your spouse or mother, or children take over your investments easily, without getting screwed by somebody who wants a chunk of your money and tells them to do something crazy, eventually leaving them broke and confused.

With dividend investing there isn’t much to teach. If you have your portfolio set up, you can tell your family what a dividend is and inform them you are either in the building stage or the retirement stage and let them know that they never need to sell any of the stock. Each month they will be paid into your brokerage account in cash dividends, all they need to do is spend less than they get paid, and they can live forever on this portfolio.

When I think about this, I consider things like dying, or going into a comma, or any other serious condition that I hope doesn’t happen. Can my wife navigate and understand how we invest? Have I taken the time to educate her and show her how we are making money and what our life financial strategy is?

These conversations are usually quite difficult in the beginning if they don’t understand anything about investing or think it’s over whelming. Once you break down the first wall and start to teach and learn together it gets much easier, just continue the communication and keep your family informed on your strategies.

Dividends make this easy. Day trading, or risky YOLO investments make teaching this very hard.

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4. Extra compounding

This was covered slightly earlier in the post, but I will re-iterate.

You buy a stock that pays a dividend of 10%

When you get paid the dividend, it is automatically re-invested into that stock.

You now went from 1 share to 1.1 shares because of the 10% dividend.

The next time that you are paid a dividend by this company you will get .11 shares, not .1 shares because the company is going to pay you a dividend for the first stock that you bought but ALSO the last dividend that you used to buy more shares with. That will be 10% of the new 1.1 shares = .11 share dividend.

This can compound greatly, and eventually you can start getting FULL SHARES as dividends as you re-invest as well as purchase more shares.

5. You get higher dividends as the price of the stock increases; 2% dividend may be a 10% dividend based on your initial investment

Stick with me. This might get a tiny bit complected and I will try to explain it the best I am able.

When buying a growth stock, you only care about one thing, THE PRICE GOES UP. An example of this would be Tesla stock. They pay no dividend, so the only profit that you make would be if the price of the stock increases and you sell the stock.

Dividend stocks are NOT the same. Do you want the price of the stock to go up? YES!!!! But, more importantly, you want the dividend to go up. This can happen by the company increasing their dividend payout (for example the company goes from a 4% dividend to a 5% dividend), or by the price of the share going up and the dividends staying the same (the company still pays 4% dividend but the share price goes from $100 to $110).

Let’s say that you buy a stock for $100, and they are paying a dividend of 5%. That means you will be getting $5 per year just for owning that stock.

Now, let’s say that the dividend goes up to 6% and the share stays the same. Of course, that would mean that you are now getting $6 per year. But that still only cost you $100.

Going back, if the price of the share went up to $200, but you only paid $100, and the dividend is still 5%, you will be getting $10 per year, but it only cost you $100.

This would mean that you paid $100 for a yearly dividend of $10, AKA 10% dividend (the dividend would still be 5% but because the share is now $200, but you only paid $100).

So, as the price goes up, the percent of the dividend also goes up, because the only thing that really matters mathematically, to you living off of dividends, is how much you paid for the stock compared to the dividend you are earning.

This can go one step further and be calculated with the re-invested dividends. So, if you are getting 10% dividend on 1 share then the next time you’d get a dividend on 1.1 shares, then 1.21 shares, then 1.33, and on and on, each time only being a 10% dividend but the amount of shares you own go up each time.

This would eventually turn into OVER 2 shares, for the price of 1 share, so your dividend would be 10% of the two shares, or $20. This would be 20% of the initial $100 invested.

So just to recap this without any math. If the price goes up, your dividend is larger. If the dividend % goes up, your dividend is larger. Lastly, if you re-invest your dividend, your dividend is larger. All else being equal.

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6. You get paid for doing NOTHING

This entire post is me telling you that you get paid to do nothing by investing in dividend stocks. You can automate your investing, automate your dividend re-invest, and not touch your account until retirement other than a few checks a year to make sure everything is operating smoothly.

This is all within reach. It’s easy, and it has worked for decades.

You can open an account on any exchange. I have links to Robinhood and WeBull below (we each get a free stock).

Don’t make investing complicated. I won’t tell you how to invest but having a good portion of your money in dividend paying index funds is one of the simplest ways to retire either on time or much younger than your peers.

This is how I started my investment career. I still invest in dividend paying index funds through my Roth IRA, and if I wasn’t spending dozens of hours every week reading and learning about other investments this would be where I invest 95% of my money.

7. High dividend doesn’t make something a good investment

The last thing I want to mention is that just because a stock has a high dividend doesn’t make it a good investment. There are tons of stocks that will pay 8% or higher but that doesn’t mean you should invest there, just do some research.

Many times investing in an index fund like VOO, or SCHD are a better place to invest even though they only pay 1-3 percent in dividends. This is because they are way less volatile and much more consistent. Plus, as we said earlier, as the price of the share goes up, your effective dividend also goes up. So, that 1% could turn into a 3, 4, or 5% yield through your investing career.

If you want high percent ‘dividends’, stable coins are another option which I will write an article about soon. You can also get yields on Bitcoin, Real Estate and many other cash flowing investments, which I will cover in other blog posts! Sign up for emails on the home page to get emailed every new blog post!

I am going to now go over one example of how to do this. This is not me telling you to do exactly this it’s just an example.

Step 1: Sign up for Robinhood.

Step 2: Go to the index fund like VOO or VTI or both, you can type this into the search bar (VOO, VTI, SCHD, etc).

Step 3: Set up recurring investment (you do this by pressing buy), this can be as little as 5 dollars a week, they may even allow less than that.

Step 4: Allow your investments to slowly build up and you don’t have to do anything else.

Step 5: Ideally, once you get comfortable with investing you will increase the amount you invest. The minimum I’d say to be able to retire early is around $400-$500 per month. But this can vary based on your spending habits and age.

You can use these links to support this blog:

Robinhood: Get a free stock!

Coinbase: $10 of free Bitcoin with deposit of $100

Gemini : $10 of free Bitcoin with deposit of $100

BlockFi : Up to $40 of free bitcoin with deposit of $100

🔎Disclaimer🔎 All content in this blog is for entertainment purposes only. I am not a professional financial advisor and my statements are not to be taken as instructions or directions. In no event will I be liable for any losses or damages arising from the use of content from any of my platforms, including, but not limited to YouTube, Blog, or any other social media. I reserve the right to change my opinions and entertainment content at any time. Please be sure to do your own due diligence!

Published by Christal

I’m here to share the knowledge and tips I have so you can see how I make passive income, save for an early retirement, and enjoy life outside the cubicle.

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