$1000 per month from DIVIDEND stocks? (Passive income from investing)

1 000 of dividend income per month that sounds like the absolute dream how nice would that be every month just for being an investor in a couple of companies you're getting paid a thousand dollars you didn't even have to do anything for that money you didn't have to go out and work the companies just sent it to you that sounds like a pretty good deal if you ask me so in this video we are going to look at the different ways that we can get ourselves up to achieving actually achieving a thousand dollars of dividend income every month and we're also going to talk about the three ways that people like to go about dividend investing so with that said let's get started if you like the video leave a like on it subscribe to the channel if you haven't done so already but for now let's get started [Music] so very quickly firstly what is a dividend simply a dividend is a per share payment that a shareholder receives from the company itself it can kind of be viewed as the company recognizing that the shareholders are in fact owners of that business and therefore they should probably get a slice of some of the company's profits so it is the company usually either annually semi-annually or quarterly sending some money to their investors out of the profits of the business now it's no secret obviously that investors love dividends at the end of the day it's just the company handing you cash that sounds pretty good but sometimes people can get a little bit overly reliant on dividends or a little bit too focused on them and what i mean by this is remember at the end of the day the way that investors can make money in the stock market there are two different ways that you can make money in the stock market number one the company you're invested in can just give you money and that's the dividend alternatively you can also make money obviously through your shares appreciating over time so the shares becoming more and more valuable so instead potentially in a lot of cases a lot of these companies don't pay a dividend that means they're not handing out their profits to their shareholders they keep their profits and if that company can then reinvest that money back into their own business and generate you know 10 20 30 annual returns with that money so we look at something like the return on investor capital well then that's going to lead to hopefully the business becoming more and more valuable as it grows and that will lead to your share price going up which means one day you can sell the shares for more than you bought them for so yes obviously investors love dividends it's just free money at the end of the day but it's important to remember that sometimes it's actually not a big stress if the company doesn't pay a dividend if they're plowing that money straight back into their own business and they're growing it very quickly however if you're an investor that is looking to generate passive income from your investments then you probably don't want that scenario where the company holds under all its profits puts it back into the business and just improves the business value over time that doesn't really work with your specific strategy you'd much rather them actually pay a dividend so that you can receive quarterly annually you know you can receive that dividend so dividends certainly have a place and usually it's very much for those people those investors that are looking to create a passive income from their investments now moving on i wanted to talk about the three main ways that people tend to go about dividend investing i'm going to start from most risky and work down to the least risky so number one is quite simply picking a portfolio yourself of individual companies that pay big fat dividends now there are plenty of companies out there that that are huge that are very cash flow positive but aren't really great at growing anymore so for those companies usually they offer their investors really good dividends so they give their investors their return in that aspect as opposed to continually growing over time so a lot of these companies for instance like banks um telecommunications companies here in australia mining companies they can all pay some really big dividends so just by hand picking a couple of you know big blue chip dividend paying companies you can start to construct a very healthy dividend portfolio however the one thing you can't do is simply just leave it there you know bugger off to some island in the middle of nowhere never look at your portfolio again and hope that you're just going to retire comfortably for the rest of your days because one of the the reason that this this process is the most risky out of the three i'm going to talk about is quite simply because you have to make sure that you aren't falling into any dividend traps now a dividend trap is essentially when a company has been paying a dividend for so long that investors are invested in that company because it pays the dividend okay and they want to keep all their investors so the company feels pressure to keep paying a dividend now a dividend trap is where the company is actually not in a great financial position and really shouldn't pay the dividend in fact by paying the dividend to keep their investors happy they're actually hurting their company in some aspect and if this gets left unchecked then that can be very damaging to your portfolio because while they're still paying the dividend it might be a six percent dividend that year you don't want that to come at the expense of the company's stock price falling by like 20 or 30 percent that just doesn't work at all but sometimes companies will keep doing this they will actually take on quite drastic measures to try and keep paying their dividend that they've always paid so that all their investors stay happy and stay invested which is a little bit backwards but that's what you've got to watch out for the way you actually do watch out for dividend traps is by making sure first well how do you make sure your company isn't a dividend trap well the first thing is obviously you've got to make sure that your company has really low debt so they don't really have to pay too much back to anyone else most of the money they make is literally just theirs to do what they want with that's really important and then the other thing is that you want to see companies that are very cashflow positive consistently okay so look back over year year after year after year for like the last 10 15 20 years you want to see that that company that's been paying a dividend that whole time has remained consistently cash flow positive so look at something like the operating cash flow on the cash flow statement and make sure that the business operations are always making money then moving on another very common way that investors like to go about dividend investing is simply investing into listed investment companies so this is where you know the the listed investment company will pull up all the money from its investors and with that money they will construct a big blue chip safe portfolio and usually a lot of those companies in the listed investment companies pay very fat dividends as well so they pick big companies that have been around for a very long time that are well trusted well respected and then the listed investment company itself decides to pay investors a consistent dividend year after year quarter after quarter whatever it might be so this is a little bit less risky than just picking a couple of dividend stocks because obviously you're getting very wide diversification by investing in a listed investment company you'll have many stocks in that portfolio and they won't be risky bets they won't be speculative positions they'll all be blue chip established companies and then all you have to do is stay in that one investment that is in itself diversified and you can just continue to receive the dividends from that listed investment company year after year so in australia one of the prime examples the most common the favorite i would say the favorite listed investment company in australia is called the australian foundation investment company and if you look at their top holdings here you can see all of the big aussie blue chips in there and a lot of the companies in that list actually pay dividends themselves but if you actually were to invest in this listed investment company right now then you would be receiving from the listed investment company around about a four percent annual dividend then moving on the third very common way that investors like to go about dividend investing is simply by buying into dividend paying etfs this is very similar to listed investment companies etfs differ however is that they they are purely passive in nature so all etfs have an investment objective they try and follow a particular index and they will always invest based on that investment objective so you always you always know what that etf is doing whereas the listed investment company has asset managers they're actually maintaining picking and choosing that stock stock portfolio so when we're talking about dividend paying etfs we can think about here in australia the ishares asx high dividend yield etf or the biggest one which is the vanguard australian shares high yield etf now interestingly you probably won't get huge share price gains over time with these sort of etfs because that's not what they're designed to do remember at the end of the day they're designed to pay you fat dividends so the vast majority of the return that you get from these investments isn't from the share price going up it's from them giving you a nice attractive dividend yield so for example have a look at this chart you can see here the ihd and vhy they were the ones we were just talking about before the ishares etf got an annual return of 1.27 for the past few years but it paid out a 6.19 dividend yield and the vanguard etf the vhy managed 2.34 per year in capital growth but paid out on average 5.7 in dividends each year so as you can see these etfs aren't really focused on trying to grow the share price but they will always give you a big dividend so overall they're the three main ways that investors go about dividend investing but now we need to talk about okay how do we work our way up to a position where we're achieving a thousand dollars a month just in dividend income well from what we've seen from a lot of these funds these etfs these listed investment companies generally we can expect from these investments a dividend yield of somewhere between four and six percent per year now making a thousand dollars per month in dividends is obviously twelve thousand dollars a year so if we're earning four to six percent and we need to make twelve thousand dollars per year then ultimately that is going to mean we're going to have to have between 200 and 300 000 sunk into the market to be able to achieve a thousand dollars a month of pure dividend income so obviously the first way to achieve a thousand dollars of dividend income per month is simply to have 200 to 300 000 sunk into the market just save it up over time and then just sink it into the market and start you know start raking in between four and six percent which gives you your twelve thousand dollars a year which gives you one thousand dollars a month however that's not really achievable for most people obviously i mean i don't have a spare 300 000 just sitting in my bank account that i can just plonk into the stock market however one thing that's worth noting is that for most people we are out there working actually going and making income ourselves through our work and while it would be nice if we could generate a thousand dollars of dividend income right here right now we don't necessarily need to for a very long time because our expenses are covered by the active work we're doing so in that case what we can do is we can start to say okay we know the end goal is going to be two hundred three hundred thousand dollars what we're going to need in the market to generate the four to six percent and get us a thousand dollars a month okay so what we can do is we can actually start to set out goals it's like okay do you want to achieve this in 10 years do you want to have a thousand dollars of dividend income coming in uh each month in 10 years time or do you want to make it a 20-year goal or a 30-year goal so that when our you know our working careers start winding down and we start thinking about retirement then we have worked up to achieving that thousand dollars a month in dividend income maybe that's more of a realistic way to go about it because that's obviously when you really need passive income is when you flick the switch and you stop working so let's have a look over 10 20 and 30 years and instead of just saving up the full amount yourself let's switch over to instead of having the dividends hit our bank account let's switch over to dividends being reinvested so over time we get to experience that compounding effect where our money turns into more money which gives us more dividends which turns into more money and so on and so forth and we push that snowball down the hill and it gathers snow over 10 20 30 years so we're gonna say that first of all we've sunk we've just sunk five thousand dollars into the stock market and now we're going to come back and just add to it every year over let's start with 10 years so if we're going to in 10 years achieve a thousand dollars of dividend income every single month then we're going to have to add 1850 per month if we're achieving a six percent return every year or two thousand and forty one dollars per month if we're achieving a four percent return every year however if you stretch it out and you make it a twenty year goal then you're going to have to save uh 417 dollars per month at six percent and eight hundred and eight dollars per month at four percent but then if you make it a retirement goal a truly long-term goal you make it a 30-year goal then at six percent returns every year you're only going to have to save 183 per month or 425 dollars per month at four percent and the reason that this deal keeps getting easier and easier for us is obviously because we're just stretching it out over a longer and longer time period but it is also that fact that what we're talking about before the longer we leave it the more the compounding effect can start to take over and generate that money for us for example if we get six percent per year and we are trying to snowball our way up to the two hundred thousand dollars we need to achieve one thousand dollars of dividend income every month from our six percent return if we work for that goal over 30 years then we've only put in 34 of that portfolio value by ourselves only 34 is actually our money that we've put into that portfolio the rest is just the compounding effect right the compounding effect has essentially just snowballed our money for us and that's made that goal much much more achievable for us however if we then look at the flip side of the equation where we're trying to achieve a thousand dollars per month of dividend income but we want to get that done in 10 years from now well then the story is much different then we've had to do much of the heavy lifting just by ourselves in fact you've had to sink 75 of that 200 000 amount in by yourself only 25 has come from the compounding effect you've basically had to do the rest yourself so there are definitely different ways to go about achieving this goal this magical goal of a thousand dollars a month from dividends alone you can straight up save you 200 to 300 000 um plonk it into the stock market into one of those investments that's going to get you pretty safe four to six percent dividend yield and then you've got your thousand dollars a month um however obviously that's a very hard task to actually achieve and for most most of us we don't actually need the thousand dollars a month right now although that would be fantastic but we can spread it out over multiple years over multiple decades so that we can break it down into a very achievable task where we only have to save like say 200 bucks a month or something to to add to our portfolios and that compounding effect can help snowball our portfolio value to a point where eventually once it does hit between you know two hundred to three hundred thousand dollars then you can just flick the switch back so you're reinvesting your dividends you can just flick the switch straight back and now all of a sudden instead of those dividends being reinvested they just flow into your bank account and then you've achieved your goals so there are definitely different ways of going about this and definitely the most achievable is making this a long-term goal working hard and covering your expenses with your active income in the meantime while still contributing to that portfolio letting it compound so the heavy lifting is done by the stock market it's not done by you personally and then come back when you're ready to retire when when you feel as though when you've got your 200 300 000 flick that switch and then you've got the thousand dollars whatever it ends up being of dividend income coming into your bank account every every single month so anyway guys that's where i'll leave the video uh leave a like on the video if you did enjoy it really helps me out um i i put a ton of effort into these videos so i really appreciate it if you want to support the channel it's the easiest way to do so leave a like and make sure you subscribe i always say this but it's so true so many people that watch my videos aren't subscribed so definitely subscribe to the channel if you like this sort of content uh if you like learning about personal finance money stock market investing uh all that sort of stuff and if you're interested in learning about how i go about my investing my two investing strategies passive investing and active investing then check out profitful links down in the description as i always say you can check out those courses they are full in-depth courses about my investing strategy but that'll do me for today guys thanks very much for watching and i'll see you guys in the next video [Music] all

Channel: New Money

Views: 216,415

Keywords: stock market, dividend investing, dividend stocks, dividends explained, dividend portfolio, dividends, dividend yield, passive income, passive income ideas, passive income 2020, passive income investments, dividend income investing, dividend income strategy, dividend income portfolio, listed investment companies, etfs explained, etf investing, etf stocks, etf vs stock, dividend etf, dividend etf investing, $1000 per month in dividends, 1000 per month passive income

Id: eCBf5ifbkp0

Length: 17min 42sec (1062 seconds)

Published: Sun Oct 04 2020