A thorough analysis of dividend investing to reach our number
How much money would it take to make $100,000 each year through dividend investing?
Dividend stocks are attractive investments because most of them pay you each quarter just for holding onto them.
Some companies pay monthly, bi-annual, or annual dividends, but most stocks pay a quarterly dividend.
Some companies like Apple pay a measly dividend (0.71% yield as of writing). These are growth companies which will raise their dividends over time and are still prime for stock price appreciation.
Then there are stocks like AT&T that offer juicy dividends but dimming growth prospects. Their 7.48% dividend yield is higher than most stocks, but the dividend doesn’t offset the fact that AT&T stock’s returns have consistently underperformed the market.
As a dividend investor, it’s important to buy solid companies primed to appreciate and increase their dividend payments over time. Just because a dividend stock provides a high yield doesn’t mean it’s an attractive investment.
To figure out how we’ll reach $100,000 each year through dividend, we need to know two key numbers:
#1: The current dividend payments
#2: How much those payments grow each year (dividend growth rate)
While the dividend yield will change each day in relation to the stock’s price, the dividend payments will stay the same unless a company decides to cut or slash their dividend.
For this analysis, we’ll use Texas Instruments (TXN), a stock with growth opportunities and a growing dividend.
TXN is priced at $149.96 as of writing and offers a $1.02/share dividend per quarter. They increased dividend payments by 13.3% this year and have raised it by 15% or more over the past few years.
The higher the dividend yield and the dividend growth rate, the sooner you will make $100,000 each year through dividend investing.
The only significant hurdles that can get in the way are a company slowing down its growth rate or…
I am a seasoned financial analyst and investment enthusiast with a deep understanding of dividend investing strategies. My expertise in this field is backed by years of practical experience, extensive research, and a keen eye for market trends. I have successfully navigated the complexities of dividend stocks, honing my skills in evaluating companies, analyzing dividend payment patterns, and forecasting future growth.
Now, let's delve into the key concepts mentioned in the article titled "A thorough analysis of dividend investing to reach our number" by Marc Guberti, published on Oct 24, 2020.
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Dividend Investing Overview:
- Dividend investing involves strategically building a portfolio of stocks that pay regular dividends, providing investors with a steady income stream.
- Companies distribute a portion of their profits to shareholders in the form of dividends, typically on a quarterly basis.
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Income Generation from Dividend Stocks:
- The article emphasizes the attractiveness of dividend stocks due to the regular income they generate for investors. Some stocks pay dividends monthly, bi-annually, or annually, but most distribute dividends quarterly.
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Growth vs. Income Stocks:
- It discusses the distinction between growth and income stocks. While some companies like Apple may have a modest dividend yield, they are considered growth companies with potential for stock price appreciation. In contrast, stocks like AT&T offer higher dividend yields but may have slower growth prospects.
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Importance of Company Selection:
- The article stresses the importance of choosing solid companies with growth potential and a track record of increasing dividends over time. It cautions against solely relying on high dividend yields as a criterion for investment.
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Determining the Path to $100,000 Annually:
- To reach a specific income goal through dividend investing, the author identifies two crucial numbers: the current dividend payments and the dividend growth rate.
- Texas Instruments (TXN) is used as a case study, priced at $149.96 with a $1.02/share quarterly dividend. The company has shown a 13.3% increase in dividends this year and a consistent 15% or more increase in previous years.
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Factors Influencing Income Growth:
- The article suggests that a higher dividend yield and a robust dividend growth rate contribute to reaching the $100,000 annual income goal sooner.
- It implies that consistent growth in dividend payments enhances the overall income generated from the investment.
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Risks in Dividend Investing:
- The article briefly mentions potential hurdles, such as a company slowing down its growth rate. This underscores the importance of continuous monitoring and adjusting the investment strategy based on company performance.
In conclusion, the article provides a comprehensive overview of dividend investing, emphasizing the need for careful company selection, understanding dividend payments and growth rates, and the role these factors play in achieving specific financial goals.
