Now that you know some basic terms of dividend investing, it’s time to jump into picking the right stocks for your risk tolerance and investment philosophy.
Welcome back to the Dividend Investing 101 series (101), where we get you into the passive income game.
The three types of dividend securities. I categorize dividend investing into three risk profiles: index funds, dividend growth, and income investing.
Creative Financing in Real Estate 102: Personal Loans
I believe dividend growth investing is the sweet spot for starting, but let’s review the three types to get a feel for each.
Index fund investing. Most people start and end with index funds; however, these create a massive problem during retirement.
When you invest in index funds like QQQ, SPY, DIA, and VTI, especially in a Roth IRA, you must sell them to generate income.
However, if you invest in a taxable brokerage account, you can do something I call “high-yield index fund reinvestment.”
This simply means you take the low dividend payouts from your index funds and reinvest them into higher-yielding products (that I will discuss later).
Preferred Shares 104: The Search for Shares
High-yield index fund investment is a great way to diversify your holdings, generate income, and grow your wealth along with the market.
Dividend Growth Investing (DGI). DGI is a great place to start dividend investing. The media will tell you that picking individual stocks is risky.
However, DGI purists recommend you pick massive blue-chip dividend-paying stocks with a history of raising their dividend payouts. Some of these companies include McDonald’s (MCD), Costco (COST), and Abbvie (ABBV).
It’s never been easier to hop into DGI because you have powerful apps at your fingertips. These apps include M1 Finance, STASH, and Cash App (all ones I use).
Five Takeaways from “Rich Dad’s Who Took My Money?”
Along with picking stocks you recognize, you also must determine their payout dates. Most companies pay dividends quarterly; therefore, building a consistent dividend schedule takes a little work. Here’s a look at my schedule.
January, April, July, and October: Altria (MO), Phillip Morris (PM), Medical Property Trust (MPW), Exxon Mobil (XOM).
February, May, August, and November: AT&T (T), Verizon (VZ), British Tobacco (BTI), Kinder Morgan (KMI), Abbvie (ABBV).
March, Jun, September, and December: Pfizer (PFE), Pepsi (PEP), Walmart (WMT), Prudential (PRU), Well Fargo (WFC).
Income Investing. Income investing is where the money is, literally. However, it requires the most understanding of markets (housing, bonds, stocks, real estate, commodities) and interest rates.
Military Success 104: Educational Fitness
There are six types of income-investing securities: business development companies, mortgage REITs, closed-end funds, preferred shares, high-yield blue chips, and dividend ETFs.
Somewhere in this collection of income products is something that fits your portfolio perfectly. However, you must truly understand what you buy when you enter income investing.
For this reason, income investing should be last on your list of dividend stocks. It is a powerful tool but can seem risky if you don’t understand the entire picture (interest rates, bonds, leverage).
Layering it all together. Your dividend portfolio is unique to you. You can combine any style to form what you need from the markets.
Become CEO of Your Life Part 1
I use all three dividend investing techniques across five different dividend portfolios: Wells Fargo, Charles Schwab, M1 Finance, Cash App, and STASH.
Income Investing is far and away my favorite type of dividend investing, but I still have roughly 15% in index funds and 25% in dividend growth.
My goal is never to sell shares. Therefore, I use my index funds to ensure future generations capture the stock market’s gains from yesterday, today, and tomorrow.
The stock market is fickle, and we don’t know which company, stock, or sector will outperform over the next 5-50 years.
Want a Tesla? Start a Rental Car Business
Which style and why. Index funds capture the entire market (VTI) and give us the growth we need to beat inflation.
Dividend growth picks, like McDonald’s (MCD), Visa (V), Microsoft (MFST), and Costco (COST), can give us out-sized compounding growth that beats the market.
The problem is you don’t know which one will outperform. It’s best to have a basket of 15-20 DGI stocks, some older companies, and some newer ones.
Staying invested in the markets is tough when you can’t pay your light bill. Or, inflation is making your daily commute too expensive.
20 More Books That Will Make You Rich
Income investing gives you money today so that you can survive daily life. Ideally, you want to reinvest 25-30% of your income investing dividends to ensure it keeps up with inflation.
I use my dividends daily to live my best life. Stocks like PDO (closed-end), ECC (closed-end), and ARCC (business development) give me large amounts of income today.
Picking the right stocks for you. Your dividend choices are YOUR choices. How much do you follow the markets?
If you don’t want to read about the daily shifts in the market, index funds may be best. If you love monthly income, closed-end funds are best.
We Make $50/Day in Passive Income
If you love to find hidden bargains, preferred shares are right up your alley. If you understand business concepts, blue-chip stocks that produce a ton of free cash flow, like Apple (APPL) and Microsoft (MFST), are your best bet.
Conclusion. Dividend investing is all about exposure to a new financial world. You may hear about a new stock you like.
You don’t need to open a full position immediately; you may only buy one stock or invest $100. You can then follow the stock for a year or two (or a month).
If you like what you see, you can invest more. If not, you can leave your money there or sell and reinvest. You have options but don’t overhandle your portfolio.
Big Money in Tiny Homes
The end goal of dividend investing is to build an income-generating machine for retirement and leave massive cash flow for the next generation.
Index funds are great for net worth (to leverage loans against), DGI stocks for generational wealth, and income investing for cash flow.
Combining all of these will give you the best of all worlds. Think of it like your primary residence, vacation homes, rental properties, and mortgage notes.
They are all real estate but serve various purposes across the spectrum of security, income, capital appreciation, and wealth building. It’s the same for dividend stocks. Good Luck!
- PDF of the Month: Don’t Gamble with Retirement 10 (Free 419-Page PDF)
- Free PDF Downloads: Download FREE PDF LIST here
- Financial Mindset: Become CEO of Yourself 2 (Free 196-Page PDF)
- Retirement Planning: Your Retirement Planning Guide 2 (Free 255-Page PDF)
- Investing: How We Plan to Retire on Dividends 4 (Free 139-Page PDF)
- Cryptocurrencies: Counting on Crypto 2 (Free 159-Page PDF)
- Real Estate: Financial Independence through Real Estate 4 (Free 112-Page PDF)
- Business: Retire Rich, Retire Comfortable with a Business 4 (Free 149-Page PDF)
- Latest DGWR: Don’t Gamble with Retirement 10 (Free 419-Page PDF)
- Everything!: The Biggest Book on Passive Income Ever 3! (book)(Web Edition)(Art Edition)
- Writer’s Comparison: M1 Macbook Air vs. GalaxyBook3 Pro 360
- Read My Books for Free: Free Kindle Books Schedule
- Book Design: Design Tips on YouTube
- Kindle Unlimited: Why I Finally Subscribed Kindle Unlimited (learn more)
- Book Reviews: 505 Takeaways from 101 Books (pdf)
- Writing: The Publishing Chronicles (Part 1, Part 2, Part 3, Part 4, Part 5)
- Best REIT- Fundrise: Fundrise vs. US Treasuries (Join Fundrise)
- Follow us: On our Facebook Page and Join our Facebook Group
- Support the Channel on Cash App: $Kingmarine1981
- For more detailed analysis, join my Youtube: MFI YouTube Channel
Leave a Reply