Why you should invest in Dividend Paying Stocks

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In this article, I want to show examples of how one can build wealth by investing in dividend-paying stocks over the long term by sharing the dividend income in my portfolio. I started investing in dividend-paying stocks in 2017 with no income from dividends. In 2022, I am earning $2,583 yearly from dividends. How much money am I adding monthly to my portfolio? I invest 10% of my salary in dividend stocks and reinvest all the dividends to buy back the stocks. The best part of dividend stocks is the yearly increase of dividend $ amounts and reinvesting dividends to buy additional stocks of the company’s stock which generates more income from dividends yearly. A good dividend company increases at least 5% dividends a year; some companies with high growth may increase by 20% or more. So on average, a dividend investor can see approximately ~7% increase in income from dividends which must be higher than your 9 to 5 job. To identify a good company that will keep increasing dividends, you must go through the company’s financial health and business model.

Why dividend stocks:

There are several reasons that tell why one should invest in dividend stocks:

• Potential for long-term growth: Many dividend-paying stocks have a history of paying dividends for quite a long time. These companies have already established themselves as a stable and growing company. If one keeps reinvesting the dividends, one can benefit from compounding interest and long-term growth.
• Regular source of income: The potential long-term growth dividend stocks will generate a much higher income in dividends with time which will be an attractive option for investors who are retired or looking for passive income.
• Potential to outperform non-dividend-paying stocks: When we talk about investing for the longer term, it has been found that dividend-paying stocks outperformed non-dividend-paying stocks.

Identifying the stocks:

I follow a few simple steps to identify good dividend-paying stocks that will keep increasing their dividends yearly.

• Consistent in paying and increasing dividends: The first thing I look for in a dividend-paying stock is the company is consistent in paying dividends. A company that pays dividends consistently is more likely to continue paying dividends and keep increasing dividends in the future.
• The dividend yield and payout ratio: The dividend yield and the payout ratio is very important for dividend investors. The dividend yield is the annual dividend per share divided by the stock price and the payout ratio is the percentage of a company’s earnings that are paid out as dividends. I always look for companies that pay a reasonable dividend yield and a payout ratio not higher than 80%.
• PE ratio: Price to earning ratio is also another parameter to look into. It helps to identify if the stock price is fairly valued or not. For dividend investors, this is very important as if you buy at a lower PE ratio then you are buying at a higher yield and you are buying more stocks that will generate more dividend income.
• Company’s financial health: Every investor should read the company’s financial statements that they are invested in. Look for the company’s profitability, debt levels, and cash flow. A company’s financial strength will indicate if it will be able to sustain and increase its dividends over time.
• Company’s business model: Always look at the company’s business model and how it generates revenue. Also, understand the strength of the company’s competitive advantage and its potential for future growth.

The growth: Keep patience and hold your investment for long-term

There are several benefits of holding dividend-paying stocks for the longer term.

• Potential for higher return: This is true for all types of stock investors. Over the long term, the stock market has historically generated higher returns than other asset classes such as bonds and cash. by investing for the long term, the investor can take advantage of these higher potential returns. Picking an excellent growth stock is very important in this case.
• Time to weather market fluctuations: In the short term, the market can be volatile, but over the long term, it tends to go upward. By investing for the long term investors can ride out market fluctuations and potentially get a higher return. Most of the time it also beats inflations.
• The benefit of compounding: In long-term investing in dividend-paying stocks, investors can potentially see the miracle of compounding interest. This is the process where the dividend is reinvested so that the investment earns more dividends from both the original principal and the accumulated dividends. This will help to grow wealth faster over time.

This blog was originally written on Medium by the author.

Recent Stock Purchase And Dividend Portfolio Update

 Hello all, I have started to write my dividend portfolio on Medium. Please follow the link below for the portfolio update

https://medium.com/me/stats/post/d60b417cd0f3

Dividend Update in November 22

Bought Ultra pro QQQ short

 

Hello everyone, Today I purchased pro shares leveraged ETF ultra pro QQQ short (SQQQ). It is very risky stock to hold but I decided to take a risk. I am planning to hold until the summer 2023. Everybody is talking about a moderate to severe recession so I decided to take the big risk. I was accumulating cash for the last few months. 

I have added 20 shares @$43.3. Currently, I am holding 45 shares with an average cost of $44.5.

Opened a new position in Medtronics (MDT)

Medtronics ($MDT)

    Yesterday I have opened a new position in Medtronics ($MDT). It is a dividend aristocrat, raising dividends for the last 45 years. They are down 32% from 52 weeks high with a PE ratio of 14. The payout ratio is only 23%. 

The company is a $109 billion dollar medical device company. It's a buy for me for longer term.

I have purchased 15 shares at $77.57. Each share gives $2.72 annually in dividends and I will receive $30 yearly in dividends from this purchase.

    Its 5 year CAGR is 8% which is pretty good and because of its low payout ratio there are plenty of rooms to increase the dividends in the future.

My current portfolio distribution

Portfolio mid November 2022

My current portfolio:

In the picture below you can see my current portfolio distribution as of November 2022. My highest percentage is in real estate. It is the highest because the housing prices went up in the last year. The next position is in the dividend paying stocks with 28%. My third highest position is my 401A. I am also holding 4% cash and 4% in crypto. Well the 4% is in crypto should be around 10%. I am loosing money in crypto right now. I am also investing very small amount in Amazon, Google, Facebook, Nvidia, and Tesla stocks which don't pay dividend. I also have a Roth IRA. I don't invest a lot into that account because I want to keep cash with me.

Percentage of return since March 2022

Since March 2022 you can see that all of my portfolios are down this year except my real estate. This is a proof that you need to diversify. Among the stock portfolios, my Roth IRA and 401A is beating the s&p 500 while the rest are down. I have a long term vision. I don't want to sell anything. I am holding them at least for 20 more years.

My projected dividend growth since 2017

    Hello all, I am sharing my projected yearly income form dividends. I have started to invest in 2017. Since then I am investing in dividend paying stocks. The advantage of dividend investing is that I will have yearly income from my investment which I am reinvesting to grow my wealth and every company increase their dividends yearly. So more yearly income, more stocks, and more dividends.

    The above figure shows my current yearly income from dividends. In 2017, I had no income from dividends and now in 5 years I am earning $2,408 yearly. 

    The above figure shows how my income increased since 2017. There is a big drop in 2020 as I had to sell some shares to finance my first home. 

    The above chart shows my dividend income monthly in the last 5 years. You can clearly see that my income is keep increasing yearly. The simplest rule is to reinvest the dividends and keep addning more stocks monthly.

    The above figure shows my quarterly income since 2018. In 2018, I was earning only $100 per quarter and in 2022 I am earning more than $400 quarterly which is more than 4 times.

Dividend Income Update May 2022

 Dividend Update May 2022

Hello Guys, today I am sharing the total amount of dividends I that I have received in May 2022. Currently, I am maintaining four different portfolios. My main portfolio is dividend paying stocks as my focus is in dividend paying stocks only. I also maintain a non-dividend paying stocks with massive growth. I invest in AMZN, GOOG, FB, NVDA, and TSLA. My third portfolio is the crypto currencies. Currently it got hammered but in the last year I have got enough profit from the cryptos. I have gradually started to buy cryptos again. My plan is to hold all the stocks for longer time. After my retirement I will sell all the non-dividend paying stocks and will invest those money to buy only dividend paying stocks to get a good monthly income during my retirement. In May, I was active in the market as I have added $SBUX, $JPM and $MPW in my dividend portfolio. In my non-dividend portfolio I have sold out $TWTR and with that money I have added $GOOG, $AMZN, and $NVDA. The table below shows the dividends I have received in May.

In the last month, I have received $122.5 in dividends. I have received $39 from $ABBV followed by $VZ ($14), $BMY ($14), $APPL ($14), and $T ($12). I used to received a big amount of dividends from $T but unfortunately they have slashed the dividends 50%. In the coming months I will add $SBUX and $JPM stocks. 

The next chart shows monthly dividend track sheet in a year. It helps me to understand how my dividends are being distributed monthly.

The chart and the table below summarizes my dividend distribution in the portfolio. The most percentages of dividends I am receiving are from the ETFs (SCHD and VYM). From individual stocks, I am receiving dividends from ABBV, JNJ, MMM, UL, PEP, HD etc.  

The table below shows the detailed distribution of my total dividends.

The dividends that I have received in May, did the DRIP for all of them. The following chart shows how my dividends are growing with time.

The chart below shows the average dividend income and the average amount of dividends received monthly. You will see that my dividend income is increasing with time (red color). 

The chart below shows the comparison of my monthly dividends on a yearly basis. The dividends are growing every year as I am adding new stocks and each company is increasing dividends on an avg of 6-7% a year. If I keep investing for longer run, just think about how much money this portfolio will generate. All you need is the patience. 

The next chart shows the total amount of dividends received in each quarter and compares the total amount of dividends with the previous years. 

On yield basis, the current yield of my overall portfolio is 2.53% while my YOC is 3.49%. The increase in YOC is because of the increase in dividends by each company. This yield only increase with time unless a company cuts the dividend. So it is very important to invest in only great companies. The current yield is dependent with he market. In bull market the yield drops while in the bear market the yield goes up.

The following curve shows the YOC and the current yield comparison with time. The YOC is gradually increasing as the companies are increasing their dividends annually.