How to Get Rich With Dividend Growth Investing
To get rich with dividends, you must understand the power of compound growth on the stock market. Dividend stocks can be a great source of income, but initially, it is best to reinvest your dividends.
Additionally, you should have a good source of income to dollar cost average into income-generating stocks. Making money with stocks is possible without a massive income, but you will reach your goals quicker if you increase how much you make.
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What is a Dividend Growth Stock?
There are various dividend investing strategies, one of which is dividend growth investing. A dividend growth stock consistently increases its dividend every year.
One of the best things to decide if a growth stock is a good investment is to check if they have consistently increased its dividend payout.
For example, companies like Coca-Cola have consistently increased their dividend annually for over 60 years.
If you purchased Coca-Cola stock in the 90s for $10 per share, you would be generating a dividend yield of over 17% today. This is because Coca-Cola now pays a dividend of about $1.76 per share.
How to Start Making Money With Dividend Growth Stocks
If you want to get rich with dividends, developing an investing strategy is the first step. There are various dividend assets that you can purchase on the stock market, including individual stocks and ETFs.
Qualified dividend ETFs
If you aren’t using a tax-advantaged retirement account for your investing, then you will benefit from choosing a qualified dividend ETF. Most dividend ETFs pay a qualified dividend.
However, the ETFs that generate income utilizing options pay unqualified dividends.
Individual stocks
Many individual companies on the stock market will pay a dividend to their investors. Investing in individual companies requires much more research than ETFs and funds. You must look into multiple companies' financial statements and pick the best ones to purchase, while funds do all of this work for you.
How to Create an Investment Portfolio
A dividend investing approach you can take is to invest in both individual companies and ETFs. Dividend ETFs make investing easy because the managers pick all the stocks for you.
If you want to invest in individual companies, you must do all the research yourself. Additionally, if the company you invest in changes fundamentally, you must choose when to sell it and allocate your capital elsewhere.
How to Earn Dividends
Once you determine your investment strategy, you can start to earn dividends by dollar-cost averaging into the stocks of your choice. Dollar-cost averaging means you consistently add money to your investments over time.
Dollar-cost averaging is an excellent strategy because you do not have to worry about timing the market. Instead, you buy at many different prices. The main benefit is that you do not get over-emotional about your portfolio.
If you put all your money into an investment and it drops hard the next day, you may feel emotional and sell some of your position at a loss. However, if you invest a little bit each day, you know that you will buy at different prices.
DRIP Investing
DRIP stands for dividend reinvestment plan. Many brokers allow you to turn DRIP on, and your dividends will be automatically reinvested into shares of the stock or ETF. DRIP investing will allow you to invest on autopilot and take advantage of compound growth.
Are Reinvested Dividends Taxable?
Whether you are using DRIP or not, your dividends are taxable. The only way to avoid taxes on dividends is to use a ROTH IRA. By the time you are 59.5, you will be able to withdraw your earnings tax-free.
Qualified dividends will be taxed at 0%, 15%, or 20%, depending on your income. Nonqualified dividends will be taxed at your regular income tax rate. If you make less than $40k per year as an individual, you can live off your qualified dividends tax-free, which is excellent for people near retirement.
Bottom Line: How to Get Rich With Dividends
Find dividend growth stocks or ETFs
The most important step in creating a dividend investment portfolio is to find the best stocks or ETFs to invest in. Of course, the easiest route is to find a dividend-paying ETF that selects the best stocks for you.
Dollar-cost average
Once you pick your favorite dividend stock or ETF to invest in, you can start to dollar-cost average into the shares. Many brokers allow you to set up an automatic investment plan, so you don’t have to worry about it.
Turn on DRIP Investing
The final step is to turn on DRIP investing, which stands for dividend reinvestment plan. With DRIP activated, you will automatically reinvest your dividends back into more shares of stock. With automatic deposits and DRIP activated, you will never have to check your investment account, and it will keep growing on its own.
If you follow the steps listed in this post, you are bound to build long-term generational wealth. However, investing in the stock market is a long-term game, so you must be patient and consistent with your dividend investment strategy.
You must also control your emotions as an investor. If you start your investment journey at a bad time, you may see your portfolio drop by over 50%. When market crashes occur, it can cause the stock market to become volatile.
You must understand the risks of the stock market and plan to hold your investments for decades at a time for the best returns.
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As Always: Buy things that pay you to own them.
-Josh
Blog Post: #048
