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
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.
- 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).
- Dividends give me options to take the dividends to reinvest into other assets (just more options cos it’s cash)
- 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.
- You need to choose dividend (or growth) stocks that are steady, in the sense their P&L have been steady
- The dividend rate must be stable and not inconsistent: need to be same or higher every year
- The dividend amount must NEVER be more than net profit
I’m the founder and writer here at NigelChua.com; as well as serial entrepreneur, therapy business entrepreneur, digital entrepreneur, investor and also happy husband, father and Christian.
Started and sold off a business for 7-figures; built another 7-figure one and growing it further, plus building/investing into other businesses and investments as well as advisory works.
Nowadays I share and teach entrepreneurship, financial independence, retiring early as well as building and living a life you love.