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Living off of dividend income

Dividends vs Growth Investments

By no means is this any advice as I am not a professional financial advisor of any sort. During the times of covid investing became a past time hobby for most people. This article is meant to just put out my opinion regarding investing into dividends vs growth. Not everyone will agree with how investing is done, but the great thing is just that. Everyone will have their own opinion regarding this topic and there is no right or wrong way to invest, it is more of a preference just like anything else. It is always interesting to see other peoples' views regarding what and how they invest.

Dividends is an investment that share profits whether its annually, quarterly, monthly or even weekly. Not all company stocks offer a dividend, to those who understand the market may say a company's livelihood could be determined by dividend yield and amount. To those like myself, I can read and research and deep dive into the company and can't tell how it will perform from quarter to quarter. Some say follow the fundamentals of the market, whereas some feel that fundamentals doesn't always predict the market especially these days where hype is king.

Growing your portfolio with dividends sounds nice but it takes a lot of time and money. Thanks to platforms that offer auto re-invest dividends, an investment can grow a tiny bit faster. Unless you have a ton of money to invest into dividends they are very slow, but if you start early it can benefit tremendously and will have a passive income at an earlier age.

Growth stocks on the other hand increase in face value a lot faster than dividend stocks. Biotech stocks for example has been growing quite fast but it has larger risk than dividend stocks. Value stocks can also have huge growth potential but usually a bit more pricey to buy into and may also offer dividends as well. Money made from stocks by face value is only gained if the shares are sold.

However you choose to invest is entirely up to you, any amount made is better than nothing. My choice was due to an interest in how dividends work, and how it affects companies that do have dividends. From researching hundreds of sites, companies which don't offer dividends usually progress faster as they have money to re-invest into the business.

Dividend Stocks or ETF's Invested

At the time of this writing I have researched much into REITs as some provide a monthly dividend. Thorough research declared most of them as "unsafe" to invest into, most of which the dividend to share price ratio being too high. This doesn't necessarily translate to the company being unstable or they will go bankrupt anytime soon. I will list a few "unsafe" companies which I had bought into due to my curiosity. ORC Orchid Island Capital Inc, this was listed like an endanger species of stocks when I researched it and bought into it. It's been doing fine and has a monthly dividend of $0.065 or an annual of $0.78 per share however you want to look at it. Recently some analysts had bumped it further into the extinction group to sell. Investing into REITs for some is too risky but logically I think its safer than most when the market decides it wants to correct itself.

I decided to open a separate account just to play around with dividends, didn't go crazy with the amount invested as I am still new to this. I did a mix of ETF's and REIT stocks, all except one are monthly dividends. Below is a snapshot of what I bought.

investing-with-dividend-income

The goal is to see what it can do and how much is required if someone were to invest for an income to live off of. Too many people telling me it would cost at least 2 million for this to work and it never made sense to me and to satisfy my curious mind I had decided to do this and will invest 1k into this account per month and nothing more. The account currently generates about $700 a year and will automatically reinvest itself.

The idea is to put in just enough to allow it to grow, but being human, patience is a problem. Everything is set to be automated so I don't interfere with it, and will come back to check once a month.

There are so many things to invest in that can help people create a back up fund should they need it. With platforms like Webull, Robinhood, Stash and others, helps make this easy. The easier to invest isn't necessarily always good. Makes buying and selling stocks too easy, and you can buy a partial share of you can't afford to buy a whole. This can also cause people investing without understanding to lose quite a bit.

During 2020 to 2021, the stock market and cryptocurrency has made millionaires out of many people. And also cause many bag holders as well.

Taxes

If you are looking at dividend stocks would it be safe to assume you're already knowledgeable about the types of taxes? There are qualified dividends which are taxed as a capital gain but requires to meet certain criteria of the IRS and ordinary dividends are taxed at standard federal income tax rates. If you are looking to invest into dividends be sure you research the tax rate so you don't end up with a surprise during tax time.

Also there are stock ETFs like qyld which aren't taxed as they are qualified or ordinary dividends. These are return of capital, how it works is the dividend given monthly are actually returned as the amount invested into the stocks. When dividend is applied the cost basis is lowered, this is a delay in taxes. But when the cost basis hits 0 and when you sell the shares it will be considered a total gain from investment. The time it'll take for the cost basis to hit 0 is low if you are reinvesting the dividends but this is something that you should know regardless of what dividend stocks you go into. Again, research is very important if you decide to invest into dividends as an income.

Conclusion

Personally I have always enjoyed the risk of the market, having high risk tolerance does help. This whole dividend thing has opened my eyes to something different. My mentality with dividends like some people feel it's too slow to make it work, but with persistence and consistency this will work nicely. This is a long term thing and not something you would buy and sell the next day. I will take a year to see where this is headed. More than likely I will keep this account as is and report back with an updated pic of my progress.

Updates

6-18-2021

Sold AGNC to buy and bring QYLD, RYLD, and the newly bought USOI to 100 shares each. At this point all the shares are increased by 1 share per month except ORC, this one is 2 a month. Along with the reinvest I am also putting in 200 a month.

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