How To Invest In Dividend Stocks For Passive Income

so in this video I'm going to share how you can earn passive income by utilizing something known as dividend investing so investing in a dividend stocks it's something that's been around for quite some time but something that you can consider taking advantage of in order to earn some extra cash on a monthly basis so we're gonna dig into that in this video now there's really two different ways of making passive income we've mentioned this the past before so they don't touch on it too much but essentially you're putting something up front to then reap the rewards of it later and you can use time upfront which some people don't have or you can put money up front to then earn money off of your money this is how the rich stay rich they invest money and then make money off of their money no you don't have to have a lot in order to start with this I started with literally fifty dollars with a dividend investing and have built it up over time now when I started I didn't have a mentor I didn't have someone to show me how to do it teach me how to do it but I just used free resources online and various different books dozens of books to learn how to actually invest into dividend stocks and invest into various companies to then earn money from my money so you can do this anybody can do this it's very possible so if you're new here to the channel you want to learn more about investing or personal finance or building wealth and consider hitting subscribe button we do our best to help as many people as possible learn as much as they can about building financial freedom so let's get started with this video let's not beat around the bush let's just start with this now what is a dividend let's kind of jump into that before we actually go into the details I'm also going to share some mistakes that I made in the past when I first started as well but let's talk about what a dividend actually is so essentially it's just going to be a payment that a company's going to give you for essentially owning that company stock that's the best way to think about it's almost like a little bonus or a cash payment that they're gonna give you either on a quarterly basis sometimes on a monthly basis or even in some cases on an annual basis depending on how they structure it but they're gonna be paying out in cash for really a bonus for you owning that company stock so I'll give you an example here of how this actually works and how you can take advantage of this but why is it that some companies pay dividends and other companies don't if you look at say PepsiCo which I'll show you a little bit more in-depth but if we look at Pepsi they're paying almost about a 3% annual dividend of versus maybe if you look at Amazon or Facebook or Netflix they don't pay dividends so some companies pay these cash payments as dividends and all don't and the reason for this is because one's generally in the tech sector or companies that believe that they can reinvest this money back into themselves a little bit better generally won't pay out dividends but rather just take the profits and put it back into R&D or various other things that they can then grow their business faster and hopefully grow their stock faster then dividend stocks that are generally more well-established you'll see them as blue chip stocks companies that maybe have been around for quite some time but like to pay out to attract new investors with that dividend so let's take a look at PepsiCo just to give you an example here as to how you can actually take advantage of this and kind of go over some details here but what I'm using here is just a free resource you can use yahoo finance gives you a little bit of information about this company and a nice decent understanding and an overview of this company now you can also go on to the company's website look at their form 10k look at the various other investor relations page just about every company that's traded on the stock market is going to have an investor relations or investor resources page on their website and they're gonna have a lot of information on there so if you're ever considering investing into a company I just go on to their company's website and we're just going to google and type in investor relations for Pepsi or investor relations for coca-cola it'll bring you to the company's website and that's where you'll be able to find a lot of information about that actual company and their earnings and their different financials we're going to go over some of that later on in this video as well but let's take a look at Pepsi here to show you how you can actually take advantage of a dividend investing so for example here so Pepsi one hundred thirty two dollars per share for this particular stock that means if you have one hundred thirty two dollars of your money invested into Pepsi you could be earning about two point nine eight percent as a dividend payment from that company so about $3.82 in the course of a year as a cash payment to you paid out on a quarterly basis so split this $3.82 over four different quarters so every three months you'd be getting one-fourth of this $3.82 so this might not seem like a lot of money you say well gee $3.82 I can barely buy a cheeseburger and you know a store at a fast food place how is this worth it well the key here is that you're building this up over time and what you can do is maybe you only have one share of Pepsi $430 but over time if you had 10 shares or a hundred shares this could really add up or even a thousand shares you can be making thousands of dollars per year in dividend payments that you can then use towards car payments or Netflix subscriptions or various other things that you want to spend money on and it seems to be very sustainable over the long run so what we can do here is if we're using Yahoo Finance go to the statistics right here and then you can look a little bit more about their actual dividend and their other financial metrics so you can take a look at but looking at their dividend there's a couple things that you're gonna want to be aware of one of them is the payout ratio this is a very important financial metric that you want to consider when looking at dividend stocks and the payout ratio is essentially just going to be the dividends as a percentage of their earnings so if you're seeing this number quite high say over a hundred percent this could be somewhat of a red flag showing that maybe this company isn't able to actually sustain those dividends that they're paying out and this is what I really want to caution you on see when I mentioned that I started pretty young in the stock market nobody was really showing me the way so because of that I made a lot of mistakes when I was younger and one of them was that I was falling into dividend traps and I don't want to see people do this for themselves so essentially dividend tramps what can happen is a company might have a very high dividend to attract investors and then either slash that dividend as a new investors come in or just not be able to increase their stock price because they're paying out so much money and dividend payments that they're not able to reinvest back into their own business so to give you an example here when I started investing I would look at companies honestly okay well perhaps he's paying a 3% annual dividend and then I'd find another company as paying 6% dividend and then I say well here's this other companies paying a 12% annual dividend this looks like such a good deal and when something looks too good to be true in a lot of cases it is that's how it works in the investing world when something just looks too good to be true there could be something fishy behind the scenes that you might not fully realize at the moment so if you're seeing companies that are paying out very high dividends you want to look at the payout ratio you want to look at their history of paying dividends as well as their stock price because something else you want to consider is you want to look at this company's dividends over their lifetime but also their stock price and factor those two into the equation to give you an example here say that we have company one here inverse versus company two right now company one pays out a 6% dividend but their company stock is losing 4% per year over the past ten years well your total gain on that might only be about two percent per year because you're getting a high dividend but the company's not growing it's actually declining so that's actually not that great versus maybe another company that's paying out a 3% dividend but growing at a four percent rate so you could be earning seven percent on that one with a smaller dividend but but a company stock that's actually increasing so that's a great example for something like Pepsi they've been increasing over the long run saying for coca-cola I've been increasing their dividends as well as increasing their stock price in the long run which is something you definitely wanna consider so don't just look at the dividend I sort of think of a dividend payment as really a cherry on top it's not the first thing you want to look at but certainly something that you do want to factor into the equation as to whether you're going to invest into that company or not invest into that particular company now there are a number of different financial metrics that are going to be incredibly important when looking at a dividend stocks one of them being the price to earnings ratio this is especially important for people who are investing into those blue chip stocks where their stocks that aren't necessarily high fast growth but more so well established company so the price to earnings ratio p/e ratio you're gonna have to take very close account into that and then also looking at the earnings per share so how much money is this company actually bringing in per share what are the earnings on that and another one that you were gonna want to heavily consider now as I mentioned earlier look you can learn so much free information on the internet on in websites like investopedia which I have used heavily in the past as well as just reading free books from your local library now I will leave some links to some different books down below some of the best books that I've read on investing to help you build a nice knowledge base for yourself but like I said you can get these at your local library or you can pick them up for probably eight dollars or ten dollars off of Amazon and then read and really learn a lot about investing and really the key here is to think about the long term rather than the short term now one of the benefits to long-term investing with dividend stocks is that you're actually gonna have a lot of tax benefits off of it as well so I'm not an accountant so you have to consult your own CPA or accountant here but essentially with dividend payments a lot of them unless there's certain types such as release I believe but with a lot of dividend payments we seen as a long-term capital gains so the most you could be taxed on it is about 20% in the United States anywhere from 0 to 20% versus regular income tax which could be up to almost 40% annually on those income taxes through your regular job so capital gains tax long-term capital gains tax is another reason why a lot of the rich people are paying less in taxes this is why Warren Buffett famous quote says that he pays less in taxes as a percentage of his income than his secretary had so really interesting he has billions of dollars and he's paying less in taxes the reason for it is because he's taking advantage of some things like long term capital gains which is especially nice for a dividend payment so how how much money can you actually make with dividend investing is this actually something that's sustainable and is it something that you can become rich off of and what I want you to think about here is let's say that you're earning 3% annually from your dividend payments as well as maybe some stock growth or the time maybe say 3% stock growth but will not factor that into the equation we're talking about cash coming in to your pocket now if you're starting with $50 like myself over the course of a year your dividend payments you might get a dollar you might be able to go to McDonald's and find something on the dollar menu and maybe get it with that dividend payment but if you didn't build this up over time so you can build this up to $100,000 well $100,000 3% annually would be about $3,000 which I believe is about $250 a month I don't know if I did that math way in my head but about $250 a month in cash coming into your pocket that you can then use on various expenses and what's interesting about this is that it's in many cases Cena is quite sustainable so assuming that you are diversified throughout your portfolio you have various different companies and you're not putting all of your eggs in one basket in one company this could be something that could be very sustainable over the long term so I do want to leave a word of caution because as I say it could be very sustainable but there are times where the market declines will see recessions we could have a depression there are times of hard economic times you want to be very careful of and think about before actually putting any money into investments there are risks and you need to be aware of that but what I personally do is I reinvest the dividends that I get from these companies back into these companies or various other different types of investments and I think this is really the key to finding success for the long term instead of taking those dividend payments and spending them on your mortgage or spending them on car payments actually just reinvesting them back into various other companies or various other different types of investments and that is how you can build wealth over the long term look and dividend investing passive income through dividends it's definitely a long-term game it's not something you jump into and get out of in a couple weeks and make a lot of money it's not gonna make you a millionaire overnight but it's something that could potentially make you a millionaire over your lifetime and it's something that is been proven by millions of people have done this and they've done very well with it so it's something you want to consider doing so what if you personally don't feel as though you want to invest in individual companies or go through the process of analyzing a company and looking at their financial statements and their income statement statement cash flows and looking at their balance sheet and calculating different financial ratios if you don't want to do that there are other options out there that could have various risks but also could be beneficial and something like that could be index funds or ETFs that can essentially track certain types of dividend stocks so a good example of this would be something like a Vanguard high-yield to dividend fund so I believe the expense ratio on this is about 0.09 percent so it's a very low fee to get into this and Vanguard very reputable company we've talked about them before on this channel I'm not associated with them but they manage trillions of dollars worth of assets for lots and lots of clients so Vanguard essentially sets up these ETFs or these exchange-traded funds that will sort of capture many different dividend stocks within their portfolio so if you don't want to invest into one company or just a couple of different companies you consider putting some money into an index fund or sorry an ETF that you can then hopefully do well over time I believe their average dividend is close to about 3% for those different dividend stocks that gives you a nice basket of different stocks that you can get into without having too much experience in the markets so those are some different ideas for yourself look if you want to learn more about investing or personal finance for building wealth consider hitting that subscribe button really would appreciate it if you found value in this video drop a like and I'll see everybody in the next video

Channel: Nate O'Brien

Views: 174,135

Rating: 4.9552307 out of 5

Keywords: dividend, dividend investing, dividend stocks, dividend stocks explained, dividend stocks for beginners, dividend yield, dividends, earn passive income, get rich with dividends, how to get dividends, income, investing, living on dividends, make passive income, nate obrien, passive, passive income, passive income from dividends, stock, stock exchange, stocks, what is a dividend, how to invest in dividend stocks

Id: tYfuEF9IYuA

Length: 13min 13sec (793 seconds)

Published: Fri Jun 14 2019