Dividend Investing: Get Paid For Doing Nothing!

I’ve never really bought into the old adage; ‘money doesn’t buy happiness.’ In all honesty, if a stranger were to knock my door and hand me over a million dollars right now, I’d be the happiest man alive (Come on door!)

Of course, I realise there’s other things to enjoy in life; health, friendship, love, and the beauty of nature are all things we can enjoy without a cent. But I’m also a realist. Without enough money to cover living expenses, the occasional holiday to Magaluf and some nice blue cheese … life can be a bit of a drag.

But it doesn’t have to be …

Many people have heard the term dividends before, but for anyone unfamiliar, dividends are small regular payments big companies give to shareholders for owning some of their stocks. I like to think of them as loyalty payments; The companies are thanking us for having faith in their brand.

Not all companies in the stock market pay dividends, however. Some, like Elon’s Musk’s SpaceX, rely on shareholders faith in their quest to inhabit other planets. It is the shareholders hope that when it does eventually happen (cough!), the share price will rise up like Super Heavy allowing them to cash out and buy some beachfront property on Mars. Personally, I’m Irish and prefer the cold.

The companies I invest in, pay dividends. They tend to be less ambitious than Elon’s, but understand our human needs. They are in sectors that produce housing, water, electric, clothes, toothpaste and nappies etc. Most have been in business for decades which make them financially robust and very low risk. Perfect for a worrier like me!

So far this month I have been paid around £40 (that’s $53 to my American friends) for nothing more than just buying a few shares. But it doesn’t stop there. Every time I receive my dividends, I reinvest them straight back into the company. This means the next time I receive my dividends, it will be just that little bit more. This is known in the investing world as accumulation, and it can make you very wealthy over time. Especially if you are young.

The amount you get paid in dividends by a company is worked out by the yield. This is the percentage you get from each individual share you own. For example, if you own a single $10 share in the company ‘bath bombs’ and the yield is 5%, then you will be paid 50 cents. The more shares you own, the more you will get back. Dividends are paid yearly, quarterly or even monthly.

There are a few warning caveats with dividend investing however. One of which is known as the dividend trap. Some lesser known companies may offer dividend yields that seem far too good to be true. They can be as high as 30% which of course looks tempting, but can come at a huge cost. This is because it is not only the dividend yield that matters when you are buying a share, but the price of the share too.

While I’m no expert, it would seem they offer this golden goose in order to raise as much capital into the business as possible. Once the money is in, they are quite within their rights to lower the dividend or even cut it completely. The chances of the share price dropping then becomes much higher as no-one want to buy them any more. Then you are left holding a rotten egg, possibly forever, or until the company becomes insolvent. So do your research and avoid them like the plague!

For me, the best way to invest in dividends for the highest possible gains is very straightforward. I look for good companies; ones with sensible dividend yields, then put them on my watch list. When the share price is low; because all shares go up and down, I pick my moment then buy them for a bargain. This way, you not only get the dividend payment, but also the rise in the share price when it goes back up again. Easy!

Dividend investing is something everyone can do. Unlike the days when trading was only for the privileged few, we can now buy shares at the click of a button through reputable trading platforms. They are relatively simple to use and you can get started with as little as a dollar. Trust me when I say once the dividends start flooding in, you will become hooked. If you remain patient, it’s the easiest way to make money I have ever known.

My only regret about dividend investing is that I didn’t do it sooner. If I had understood thirty years ago what I am telling you now, my life could be so much easier. Just imagine all that extra cheese I could buy!

Disclaimer: This article is a brief glimpse into the world of dividend investing. While there is a wonderful simplicity to it, I have spent countless hours learning how to do it in the safest way possible and in line with my own financial goals. If you do decide to give it a go, please make sure to do all your own research before making any financial decisions or consult a financial advisor for your own specific situation.

Thanks for reading