“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” – John D. Rockefeller on dividend stocks
As the name Joyful Dividends suggest, I am thrilled whenever dividends from good companies or investment holdings arrive in my bank account, “Ka-Ching!”. The sound of money coming in is sweet, ain’t it?
By investing continually in fundamentally great dividend stocks, you will find yourself creating another source of income automatically as time passes by. While there are definitely risks to investing in stocks, you can reduce these risks by buying into and building a diversified portfolio that gives you enough income to pay for your everyday expenses.
When you reach a point where your dividend income from stock investing is more than income from your job, maybe it’s time to retire and follow your passion? A glorious rainbow awaits those who start and persist in this journey of dividend investing. Keep it consistent, and you will find rich pickings at the end of the journey.
How Reliable is Dividend Income?
Perhaps more reliable than employment income.
What happens if you lose your job tomorrow due to structural changes? Maybe the company doesn’t need you anymore, or your new boss is extremely hard to please? If all your income comes from your employment, you will find yourself stranded if that source of income disappears one day.
However, if you have a portfolio of more than 10 companies paying you dividends every quarter or every half a year, you are in a good position. Life can be uncertain. Reduce that uncertainty by relying on rock-solid dividend stocks!
Related Content That Helps You Make More Money:
Buying Dividend Stocks Over Time
To get started, you need to understand that there is no sure way of always being profitable in the stock market. There is usually short-term market volatility that causes stock prices to move up and down. However, one way to ensure that you are picking the right stocks to invest in is to look at its track record of paying and growing dividends.
Track Record of Dividend Growth
A dividend stock is more attractive if it has raised dividends consistently for at least 10 years. Dividend growth signals that company’s management is able to execute on prior growth plans, increase earnings, and manage cash flow well. Dividend growth can transform lower-yielding stocks into excellent income producers as time passes. Have a look at how the income streams of 2 dividend stocks compare:
|Year||Stock A (7% Yield)||Stock B (5% Yield at 10% annual dividend growth)|
In only 5 years, the lower-yielding 5% dividend stock would generate more income than the 7% dividend stock! Another thing to note is the concept of total return.
Total Return = Dividend Yield + Share Price Appreciation
Since Stock B generates more income than Stock A within 5 years, it’s share price is likely to grow faster as investors start to take note. In theory, Stock B is also worth more than Stock A using advanced valuation techniques.
Stability of Dividend Stocks’ Stock Price
According to data from Standard & Poor’s, stocks with a track record of dividend growth tend to be less vulnerable to poor market sentiment. In the 2008 Global Financial Crisis, strong dividend stocks fell only -22% as compared to the overall -37% fall in the S&P500. When stocks rebounded in 2009, dividend stocks achieved 27% capital return in stock price, as compared to 26% for the S&P500.
Buying stocks that consistently pay and raise dividends also enables you to take advantage of one of the most powerful effects of financial planning – compounding. By reinvesting dividends to generate more profit over time, investors will find that the income potential of an original investment is accelerated.
Some Excellent Dividend Stocks
While stocks like Alibaba, Facebook and Netflix hog the limelight these days, dividend stocks continue to be an excellent investment option. Here’s a shortlist of some of the most stable ones:
|Stock||Exchange||Dividend Yield||Annual Dividend Growth Since 2000|
|Johnson & Johnson (JNJ)||NYSE||3.5%||+13.5%|
|Abbott Laboratories (ABT)||NYSE||3.4%||+9%|
|Frasers Centrepoint Trust (J69U)||SGX||5.6%||+6.9%|