Lets talk dividends! Yes, its a really boring subject but I want to show you something in this video that is often overlooked about dividends and what makes them so powerful.
Now, if you invest your money in the markets and you buy stocks, you have definitely heard the word dividend being thrown around.
Before I jump into the juicy stuff, I’m just going to describe what a dividend actually is. Put simply, it’s a distribution of the companies earnings being distributed out to shareholders. People like us. People that put their hard earned money into these companies to become part owners of them.
The same way you would pay yourself if you owned a small business. A beauty salon, barber shop whatever that business is. Except when you own your small business, you are in control of how much money gets drawn from the profits your business makes.
With a publicly traded company, that portion of the profits (ie dividends) that is paid out to shareholders is determined by the board of directors who are voted in by the shareholders.
So when you grow that successful barber shop of yours and open up 2 or 3 new locations and your business starts to become more profitable, as the owner you are going to have a bigger payday right? Yes, you’re gonna be paying yourself more money coming from that business.
Of course you can put that money back in the business and pay yourself nothing in order to continue that growth but that’s up to you.
This leads me to the most overlooked part about dividends. Dividend growth and the compounding effects they have on your investment portfolio.
As a company grows and becomes more profitable, theoretically their dividends should grow with it. Sometimes a company may even have to cut their dividend when they get into trouble and can’t meet those obligations.
Then there’s some companies out there that have been growing their dividends year after year for decades! Even during the financial crisis. So when you buy a dividend stock, don’t just buy it based on its current yield but consider the safety of that dividend and its future growth prospects.
That’s right! It doesn’t matter if you lose your job or the market crashes, you are getting paid everyday you wake up in the morning(assuming you are holding on to a SAFE blue chip company). This is why I love being a dividend investor and dividend paying stocks make up the bulk of my portfolio. Let’s have some more fun here.. Look at bell.
Now you know what dividends can do for you. This is why I don’t care about the day to day price movements of a stock when I channel my focus on dividends and growing my income. In fact, if I flip to the business channel and I see nothing but red, I actually get excited because as a dividend investor, I’m thinking about the new opportunities that could be out there and buying solid dividend paying names at a discount.
Going back to that barber shop analogy, you might be still grinding away working 80 hours a week running your business. If you’re a shareholder, your income is completely passive. The most work you will ever have to do is walk to your mailbox and pick up your check. I hope you gained some insightful information from the video and become another lazy investor like me. Good luck!