This is the Fastest Possible Way to Live Off Dividends

dividend growth investing is one of the most popular forms of investing out there particularly because the thought of receiving truly passive income in the form of dividends is pretty attractive the thought of being able to receive enough money and dividends to either pay most or all of our expenses as well as making enough to live a fuller life without being bogged down by a job is a pretty big dream to a lot of people but there's a serious drawback to dividend growth investing and if you've seen other youtube videos out there you might already know what i'm talking about and that is to be able to live off dividends either partially or completely for your income requires a massive stock portfolio we're talking hundreds of thousands of dollars or in some instances with youtube dividend investors i've seen over a million dollars in stocks and etfs in order to reach that point needless to say this is pretty discouraging to a significant amount of investors out there tell me if this story sounds a little familiar let's say you're 30 years old and you make the decision that you want to be a dividend growth investor you decide to take ten thousand dollars in your savings account and put it into one of the most popular dividend growth stocks out there johnson and johnson j j has consistently raised their dividend amount every year for the last 58 years along with its stock price appreciation it seems like a no-brainer that this is a really solid investment for a dividend growth investor before you know it you're on your way to creating a more prosperous future full of passive income but then it dawns on you that johnson and johnson's stock only has a dividend yield of 2.48 with the currently trading at 166 dollars and 48 cents per share that means that every quarter you're only receiving one dollar and one cent per share that you own that comes out to a little over 33 cents a month for every share of johnson and johnson that you own if you invested ten thousand dollars into j and j at 166 dollars and 48 cents per share that would be enough for you to buy 60 shares with 60 shares you'd be making 60 dollars and 60 cents every quarter or a little over twenty dollars a month earning twenty dollars every month after investing enough money to buy a really decent used car doesn't sound so great does it but now here's the key point behind dividend growth investing j j raises their dividends every year so that means that as long as the company doesn't fall on hard times they're going to continue to raise that dividend every year so you just got to have enough patience and eventually you'll start getting paid more dividends as time goes on let's say you then decide to see just how much johnson and johnson typically raises their dividend every year so you go online and you realize that they have a history of raising their dividends every year by a measly four to six cents per year if we use a dividend calculator we can estimate how much money we'll have in the future with this investment j j stock has an annual dividend growth rate of roughly 6.13 according to seeking alpha which will help us determine how much our dividends will grow using our ten thousand dollar example after forty years of waiting you will have earned a measly forty one thousand one hundred and thirty eight dollars and sixty two cents in dividends if you didn't reinvest them if you did decide to reinvest those dividends or in other words you chose not to spend a penny of your dividend income on something you really wanted like a new car or a nice vacation or simply paying your bills for 40 years and just kept buying more and more shares you will have made 64 231 dollars and 12 cents in dividends if you think johnson and johnson is the exception here you're going to find a very similar pattern with other really popular dividend growth stocks let's take a look at some other really popular dividend stocks out there and see how j j compares with them here we have the 3m company which is another very popular dividend growth stock it currently has a dividend yield of only 2.98 percent here's procter and gamble which currently has a dividend yield of 2.55 percent mcdonald's 2.21 percent emerson electric 2.2 percent and the list goes on and on now sure you can keep buying more and more shares of johnson and johnson stock as well as other dividend growth stocks as we talked about over the next few decades but you'll realize that the goal of being able to live off dividends either partially or completely for your income is starting to look more impossible if you want to achieve this before you're significantly older knowing this information causes a lot of dividend investors to eventually stop dividend growth investing altogether because they realize that their dream of completely living off dividends won't be achievable until they're gray-haired and mostly done with their lives not to mention if you're already approaching or at retirement age already you don't have decades to wait for your j j dividends to appreciate you're looking for investments that offer you high amounts of dividend income now as opposed to some day later maybe you'll have more than ten thousand dollars to invest but again unless you're fortunate enough to have millions of dollars saved up being a dividend growth investor is not going to be an ideal situation being a dividend growth investor only works for two types of people those who already have millions of dollars to invest or people who are really young and are willing to sacrifice a significant amount while they're young so that they can be wealthy when they're too old to actually enjoy living off their dividend income now i totally get that some dividend investors want to live like warren buffett they just want to keep investing and investing and basically running up the score clock but remember warren buffett doesn't exactly spend a lot of his money he lives very frugally personally i'm not the kind of person who wants to save as much as possible and then die without enjoying it so with that being said if you want to start earning high amounts of dividend income every month now as opposed to decades in the future it's clear that you're going to need to target different types of investments obviously you'll need to set your sights on investments that have higher yields that's really a no-brainer but there are some important things to keep in mind like avoiding stocks and funds that are steadily decreasing their dividend distributions or investing in companies that are very very high risk people ask me what the best kind of investment is for someone who's looking for not only high dividend income but also growth in its distribution amounts and share price and i'm convinced the absolute best investment that meets those qualifications are covered call etfs these are somewhat of a newer type of investment that haven't become mainstream yet but they're a gold mine for dividends i've been asked what i'd invest in if i only had a hundred or a thousand dollars and covered call etfs would always be my first pick probably the most well-known covered call etf out there would be qyld which currently has a dividend yield of 11.49 percent and pays dividends every month as opposed to every quarter the key to understanding how these etfs generate such a high amount of dividends is to basically understand how options work i made a whole video not too long ago on qyld in which i describe in more detail how they function but to give you a brief summary these etfs follow a covered call investment strategy in which the fund buys a group of stocks in the nasdaq 100 and then they also sell call options that correspond to that basket of stocks these options are then sold every month and the option premiums that are earned are passed on to investors in the form of dividends as a result what we as investors get are extremely high dividend distributions every single month with growth according to seeking alpha qild has grown its dividend for over two years so far and remember that's already with a current dividend yield of 11.49 percent another great option is ticker symbol n-u-s-i because in addition to buying call options on its holdings it also sells put options what this means is on days when the nasdaq 100 falls which is what this etf mirrors nusi's share price won't fall too dramatically but the trade-off is that this etf has a much lower dividend yield it's still much higher than average at 7.88 percent though and as you can see this fund was just launched back in december of 2019 and since then it's had a good amount of appreciation in its share price taking our original 10 000 example if you put it all into qyld at its current share price of 22.56 per share you would have enough money to buy 443 shares at its current share price with a yield of 11.49 443 shares would earn you roughly 101.13 every month that's a whole lot better than johnson and johnson's 20 and 20 cents per month isn't it and if you chose to reinvest those dividends every month think of how incredible that snowball effect would be in building up a massive income producing portfolio alternatively you could choose to reinvest your dividend some months and spend them other months until you've reached the point where you can fully live off your dividend income here's another great type of investment that pays higher dividends to investors they're called bdcs or business development companies they've been around since 1980 and they're basically companies that provide financing to small and medium-sized businesses in order to help them grow in return for receiving financing these small businesses are required to pay a certain amount of their profits to the bdc and then as required by law the bdc must pay 90 of the money they receive from these small businesses back to shareholders in the form of dividends it's not unusual for bdcs to have dividend yields of over eight percent some of them pay monthly but for the majority they typically pay quarterly which still isn't bad if it's still paying massive dividends right there's two stocks in the bdc sector that really stand out to me one is aries capital ticker symbol arcc which happens to be the biggest business development company out there this one has a massive dividend yield of 8.18 another one i really like is new tech ticker symbol n-e-w-t i made a whole video about this stock back in january of this year and since then this stock has had a pretty sizable dividend increase covered call etfs and bdcs are only some of the investment types out there that pay large amounts of dividends there's more out there that are worth looking into such as real estate investment trusts closed-end funds master limited partnerships split share funds among others this is primarily what my channel revolves around which is aggressive dividend investing i primarily like to cover these type of higher yielding investments for people who like this method of investing the bottom line is this if you want to live off your dividends much sooner in life be sure to target specific alternative lesser known types of higher paying investments reinvest those dividends as often as possible to build up your dividend portfolio significantly faster or spend your dividends in some months like on a nice vacation and choose to reinvest in other months you'll be surprised how much more motivated you'll be to be a dividend investor when using this strategy i don't know about you but if i logged into my brokerage account and saw that johnson and johnson paid me 20 dollars that doesn't really motivate me as much to keep it up if i were to see qyld paying me 102 dollars every month there's definitely an emotional factor to dividend investing this way okay that's going to wrap up today's video thank you all so much for watching i really do appreciate it if this video benefited you in any sort of way please click the like button below and also subscribe to the channel if you want to see more high dividend investing strategy videos it would just let me know that there's a sizable enough audience out there who wants this kind of content and i'll continue to provide you all with that okay thanks again guys and i'll catch you next time take care

Channel: Dividend Bull

Views: 685,415

Rating: 4.9035683 out of 5

Keywords: Live Off Dividends, How to Live off Dividends, Passive Income, Dividend Passive Income, High Dividends, High Yield Dividends, Live off Passive Income, Dividend Growth Investing, Dividend Investing

Id: 6GgZo5OjDpE

Length: 11min 35sec (695 seconds)

Published: Tue Apr 27 2021