"Do you know the only thing that gives me pleasure? It's to see my dividends coming in." - John D. Rockefeller
Remember how I talked about millionaires in America having 7 income steams. No? Don't worry you can find that article here. Today, I'm digging into one of my favorite passive streams: dividend-paying stocks. Now, before you run off at the thought of stocks and trading, stick with me. I'm keeping things as simple as possible. So don't tune out on me, doesn't clicking a few buttons and making money sound nice?
Film Review (my experience)
"Hey Justin, why do you buy dividend stocks, don't they gap down by the amount of the dividend?" A seasoned trader asked me this question, and it's a great question if you are so zoomed in you miss the bigger picture. You see, he is right: if a stock pays a $1 dividend, it's share price will decrease by $1 on the ex-dividend date. This happens in what is called premarket hours (before the stock market opens) but sometimes the price of the shares bounces right back even before the market open. Does it happen every time? No, can the share price gap down even more than the dividend? Yes! But if we zoom out from the microscopic view and take in the bigger picture , many dividend stocks appreciate over time, just like their non-dividend-paying counterparts. I don't want to get into growth vs income stocks today, but if you are interested you should check out my other site www.goodkidstradin.com. People who have an interest in stocks need to hop over there as we are a supportive community and love talking about things a lot of people find boring.
Speaking of boring, I've been called "boring" trader by a couple different groups, but I prefer to think of myself as "consistent." You see, I find peace in consistency and Dividend Aristocrats have generally delivered that for me. These blue-chip stocks, known for increasing their dividends over time, provide a steady stream of income while offering potential for capital appreciation. The best part? This list is free on plenty of websites, so don't pay for it! Here's a link!
Among my favorites are names like Coca-Cola, Caterpillar, 3M, Con Ed, Clorox, ADP, and plenty more. Even this small selection spans multiple industries, providing that ever-important diversification.
But let's not get lost in the weeds here. The beauty of this strategy? It's like being a landlord, without the hassle. You purchase your "properties" (stocks) when they're undervalued, collect "rent" (dividends), and potentially sell when the "property value" increases. But, you won't have to deal with tricky tenants or the maintenance that comes with owning homes/buildings/land.
How do I do it? I keep an eye on my favored Dividend Aristocrats, watching for dips to swoop in on. I plot out my weekly support and resistance lines (sounds complicated but I promise it's not). And, to add an extra layer of income, I sell options against my shares, doubling my dividend with no additional risk, except capping my profits if the stock skyrockets. I always choose multiple sectors, so whatever amount of money I want to invest in dividend stocks I divide it by at least 5 to make sure i have some diversification. Because when (notice i didn't say if) one of the stocks you owns makes a cut to their dividend wall street is not going to be happy. I remember when ATT (stock symbol T) decided they no longer were going to keep raising their dividend yield. The stock and shareholders (including myself) took decent cut in our profits. I had held the stock long enough to where I didn't really lose that much, but it was good to have other dividend payers who weren't impacted so my overall portfolio didn't suffer.
Don't get too focused on 'losing' when the market pulls back. This is referred to as a drawdown because you account's balance will go down as the market does, but the good thing about owning shares of a company versus trading options is your shares never expire. Reminder: people pass stocks through many generations of their family. So as long as you don't panic in a drawdown, and keep collecting your dividend (even if your account balance is down) this is one of the 'easiest' passive income streams there are. I'm bring this up because yes it doesn't ALWAYS work. But if you do it in a controlled and methodical way it will provide you a stream of passive income. Yes it takes some money to get started, but you can get started on a smaller scale, you don't have to wait!
Offensive Game Plan (actions to obtain freedom)
Educate Yourself: There's a wealth of free information online, use it! Websites, blogs, forums, and platforms like www.goodkidstrading.com (my free site) offer you valuable insights and advice. YOu can find a list of dividend aristocrats here. Be an active learner and soak up as much knowledge as you can about investing in dividend stocks.
Start Small: Don't be deterred if you don't have a lot of money to invest. Starting small can still lead to significant gains over time. Remember, every journey starts with a single step.
Diversify: Don't put all your eggs in one basket. Make sure to diversify your portfolio across different sectors and industries. This will spread the risk and increase your chances of earning consistent dividends.
Have a Plan: Before you dive in, have a plan. Identify the stocks you want to invest in, decide on the amount you're willing to invest, and set a clear goal. A well-thought-out plan will guide your investing journey.
Defensive Game Plan (actions to defend your freedom)
Stay the Course: Investing is a long game. It can be tempting to sell when stocks dip, but remember your long-term goals. Have patience, keep calm, and stick to your plan.
Review Regularly: Just because you've invested, doesn't mean you set and forget. Regularly review your portfolio and make necessary adjustments. This will ensure your investments align with your goals.
Don't Chase Returns: High returns are attractive, but they often come with higher risks. Don't get caught up in chasing after companies that pay HUGE dividends. There is normally a reason they do, and it's not always good. Focus on companies with solid financials that consistently pay dividends.
Don't Be Afraid to Ask Questions: There's no such thing as a dumb question, especially when it comes to your financial future. If you're unsure about something, ask! Forums like goodkidstrading are excellent places to find answers and learn from others' experiences. YOu can always reach out to me. I'm here to help you! Lets talk
This is just one way I built my own freedom and left the corporate grind in the dust. If this sounds like something you'd be interested in, stick around. There are more tips and tricks where this came from. And remember, you can always head over to goodkidstrading.com to learn more about trading, entirely free. Trust me, it's worth a click.
Remember, investing in dividend stocks is not a get-rich-quick scheme. It requires patience, diligence, and discipline. But with a solid plan and a commitment to learning, it can be a powerful tool in building your financial freedom.
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What are your favorite dividend paying stocks? Lets talk