Get your stuff to pay for your lifestyle???

Let me show you a typical example.

  1. John Doe, who earns $4000/month. He spends it all with some 5% savings, and he’s pretty happy of his progress. It’s not shabby, and he’s content. In a good month, he can save more, around 10%. In about 10 years, he’s socked away some $24,000.
  2. Jane Doe, who also earns $4000 a month. She decides to save a little more so she can invest 30% of her income every month into dividend stocks. She follows some of the tricks of the trade I share here in nigelchua.com. In 10 years, assuming the dividend stocks pay out average 7% per year and she reinvests every single dividend, she’d have $241,210.81. That’s already 10X of John. 7% per year on this means if she stops working, she’d continue to receive $16,884.7567 per year in dividend.

Which sounds sexier?

I dont know bout you, but I really really like #2’s approach better.

I can budget to spend at least 50% of my dividends on frivolous purchases, and reinvest the difference.

Maybe even take some of the dividends to start an online business.

Get delicious dividends (literally free money)

Ah, I remember receiving my first dividend – it was a mix of euphoria and orgasmic even.

This is the closest thing to a true passive-passive income. Dividend stocks are public listed companies that focuses on paying out a big percentage of their profits to shareholders for tax benefits. There are market fluctuations where the price of the dividend stock can go up or go down (or both), and they will pay out their dividends every 3, 6 or 12 months (so that means 1X, 2X or 4X per year).

There’s 2 ways to this:

Dividend stocks per se

These are the stuff I’m typically referring to in this article, and they typically will pay out the dividends automatically into your bank account when it’s dividend paying time. There’s so many to choose from, be it

  • by country (every country has their own, and many)
  • by sector (hospitality, REITs, trusts, telco etc)
  • by payment frequency
  • by stability of dividends

Growth stocks

Some had emailed me to tell me that dividend stocks and growth stocks are similar, in the sense if you choose growth stocks that historically have been growing 5-10% per year, you can actually “trim” the 4%+ as dividends per year, and voila! Dividend stocks similar.

For me, it’s a yes and no.

  1. I’m a bit lazier, so I like it when it’s done for me, the dividends are sent to me automatically (it’s a nice feel too).
  2. Dividends give me options to take the dividends to reinvest into other assets (just more options cos it’s cash)
  3. I dont trigger fees when dividends are sent to me, but if you trim/sell a portion, you will have to pay fees

Growth stock on the other hand, it can keep compounding and growing on itself, so that’d depend on your preference.

Some considerations

  1. You need to choose dividend (or growth) stocks that are steady, in the sense their P&L have been steady
  2. The dividend rate must be stable and not inconsistent: need to be same or higher every year
  3. The dividend amount must NEVER be more than net profit