Want To Earn A Dividend “Paycheck” Every Day? It’s Easier Than You Think…
There’s nothing quite like the feeling of collecting a dividend distribution. It’s almost like a paycheck – but without any of the work. And if you have the option of reinvesting those proceeds into more shares, which in turn yield their own dividends, which then purchase more shares… even better.
You’ve probably seen some of the charts and graphs illustrating the long-term wealth-creating power of dividends (in fact, I shared one recently). But let me put this in another way to really drive the point home…
The S&P 500 has given investors a 10.2% average annual return since 1965. Nothing wrong with that. But Warren Buffett has famously chalked up 20% annualized gains at Berkshire Hathaway over the same period, for a market-crushing cumulative return of 2,810,526%.
In the process turning a modest $1,000 stake into $30+ million today.
Dividends have played a major role. It’s no coincidence that Buffett’s favorite long-term holdings are all dividend payers. I’m talking about anchor positions in timeless businesses like American Express (NYSE: AMEX), Coca-Cola (NYSE: KO), Bank of America (NYSE: BAC), and Verizon Communications (NYSE: VZ).
With growing income streams from these and other holdings, Berkshire Hathaway will pocket more than $5 billion in total dividend payments this year.
A “Paycheck” For Nearly Every Day…
310. That’s how many dividend “paychecks” we stand to collect this year over at High-Yield Investing. At the moment, we’ve got 48 holdings in our premium portfolio spread across five different sub-portfolios. 32 of those holdings make regular quarterly dividends, 15 pay dividends on a monthly basis, and one of our U.K. positions sends out payments semi-annually.
If you exclude weekends, that means we are depositing (or reinvesting) an incoming payment almost every working day of the year. I typically add up all these distributions at the end of each month and update my cash position accordingly. We’ve collected $1,946 in dividends and interest over the past couple of months, building our cash position to nearly $17,000.
I dip into these funds to cover new investments, most recently adding 200 shares of an outdoor sports equipment maker. Given its current payout of $0.48 per share, will boost our annual income stream by another $100 or so.
We selectively deploy accumulated dividends into new holdings, which then throw off more income, which is then plowed into more shares or used to establish new positions. It’s not quite as exciting as speculating on cryptocurrency, but compound interest is one of the most reliable ways to systematically build wealth over time.
Of course, I’m preaching to the choir here.
But here’s the crux of this week’s sermon. Outside of a couple of preferred shares, none of these dividends are set in stone. The issuers are free to increase distributions as they see fit – and most have a pattern of doing just that.
We’ve had a flurry of dividend hikes over the past couple of weeks. NextEra Energy Partners (NYSE: NEP) just raised distributions from $0.685 to $0.7075 per share. But that’s nothing new – the alternative energy partnership has bumped up distributions every single quarter for the past five years. Twenty in a row. Along the way, dividends have nearly doubled from where they stood back in 2017.
But all things equal, if a dividend check every 90 days is great, then receiving one every 30 days is even better. Let me give you an example from my High-Yield Investing portfolio.
Back in 2013, I purchased some shares of Realty Income (NYSE: O) at just under $40 per share. Since then, we have collected more than 100 monthly dividends totaling over $20 per share. That’s a return of 50% just from dividend payments alone – to say nothing of any appreciation in the stock (which happens to now be worth more than $75).
Meanwhile, the dividends have continued to grow as well, increasing from $0.17 to the current $0.25 per share. That works out to an annual distribution of $3.00 per share – for a hefty yield on cost of 7.5% on my initial outlay.
Who wouldn’t rather collect 12 dividend checks per year than four, especially knowing the power of compound interest? Of course, it’s never a good idea to invest based on yield alone, which is why I put every prospect (regardless of dividend frequency) through a gauntlet of background checks involving balance sheet health, cash flow projections, competitive analysis, valuation, and other critical factors.
Thus far, just a handful have made the final cut into my portfolio. And for the first time, we’ve compiled a list of 12 of my favorites into a special report — one for every month of the year.