I believe that creating a passive income stream through dividends is an achievable, intriguing and stimulating way to decrease my family’s dependency on just salary income. After doing some research, I have found that putting your money in bonds, cds and money market funds will only be enough to meet inflation and over long periods of time exceed it by a couple % points on average.
Stocks on the other hand offer you the best possible investment opportunity out there and if you find a better deal please do let me know! Over 30-35% of stocks performance over the past 50 years has been because of dividends; the rest comes from capital gains. If you look at the S&P 500 from 1957- 2005, the dividends have grown on average 5% per year for the index. A $1000 investment in the S&P500 in early 1957 would have provided you with an annual dividend income of about $40. In 2005 your dividend income would have grown to about $610. By 2007 your investment would have been worth over $32,000.
Overall dividends should be considered an important part of one’s portfolio. Financial advisers normally tell you that when you retire, you would/should be taking a 4% withdrawal from your nest egg each year. However, if you can achieve at least a 4% yield that grows each year to at least cover the rise in inflation you would be able to weather any short-term and long-term weakness in the stock market(2000 & 2008). A very good strategy over the long run is to create a diversified portfolio of stocks, that have shown consistency in raising their dividends year after year and which have an attractive dividend yield.
My strategy mostly involves investing in the Dividend Achievers, Aristocrats, and Kings that provide high yields that show consistent increases in dividends over time and the ability to cover those dividends in the future. I hope that this blog will serve as an inspiration for people and can possibly change their financial lives for the better.
-Work Hard or Work Smart?