Today's video is about the power of dividends and how they build wealth. Now, I'm doing this video as a little taste and promotion to my course Passive Dividend Investing.
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This course is set up to share with you how to invest in high paying dividend stocks, take your money and grow your money through dividend appreciation. That way, you can be a DIY investor. You don't need any of the other companies to manage your money. You, by all means, can go ahead and execute and place some trades yourself with just a little bit of education and put it into a few different high paying dividend stocks.
What you may not have known is that dividend-paying stocks account for a large chunk of most investors' return. They can build wealth to an exceptional level if you have the power of the capital behind it along with the know-how.
Towards the end of this video, I'm going to share with you some calculations and show you how the rich become exceptionally wealthy by just having their money in this dividend paying stocks and investments. They make money through passive income.
What is a Dividend?
- They're money paid regularly to the shareholders by the company.
- The reason companies do this is because people like steady income and investors see it as strength within the company. Making the company more attractive to invest in.
Ultimately, this is why companies pay dividends to their shareholders along with many other reasons.
If you think of it on a basic Lemonade Stand concept, if somebody was looking to start a lemonade stand and they needed to borrow a thousand dollars, what you can do is loan them that thousand dollars to start that lemonade stand. But then which you could say is well I want a dividend or a payout from those profits every three months until you get your thousand dollars back and then some and that's really what a dividend is.
As time moves forward and that Lemonade Stand makes money, every three months, they're going to pay you a dividend from the profits and the proceeds.
Every company is going to pay a different amount, but that's the basics of how a dividend works.
You might be wondering, how much can you make with dividends?
- Every company pays a different yield - the percentage of return on your money. Because individual companies feel like they're more of a growth company, instead of using the dividend as a way to attract but they use their growth as being a new company, a hot company, a modern company - they use that as a way to attract investors. Other companies that are more stable, but they may pay a little bit less. So every company's going to spend a little bit of a different amount which is your yield.
- Payments are based on a per-share basis. Meaning they are on a per share basis based on the percentage of company shares that you own. The more shares that you own within the company, the more you're going to get.
- The more shares that you have, the more you can make - it comes down to the power of having more capital investing that capital and then making it through those dividends to accumulate and build your wealth.
The power of investing in dividend stocks
How the extremely rich, get richer. The wealth builds within people's accounts.
I know that if you're starting out with a thousand dollars in investment, it may not seem like a lot. Even if you're starting out with five thousand dollars. Getting paid through dividends may not look like a significant change in your life, but remember this is a long-term game.
Whether that's for retirement or some other future needs, it's investing. It's not going to be quick and easy. It's not going to be simple, you put it in, and then you get money out the next day. It's about putting your money to work, allowing it to work and the longer that it works, the more return that you get.
That's the power behind dividends. You want them to work, and it takes a great deal of time.
I want to show you the power behind dividends. So, here we have an excel sheet that I'm going to use to give you some insight on how much you could make and the power behind dividends.
If you're starting with a small account, think about the longer 20-year cycle, and as dividends also appreciate with time because the dividend doesn't stay flat remember right now, I'm going to share with you an example that's linear based but recalled that these dividends also grow with time.
I have Johnson & Johnson, Apple, and AT&T with a dividend payout. Johnson and Johnson have 84 cents, Apple that 63 cents and AT&T with 50 cents per share.
The corresponding price is listed over here. We have Johnson & Johnson $141, $174 for Apple and $37 for AT&T; this price continually fluctuates, so we're just using a rough guideline.
What I have done some calculations, so if I input the shares bought, it's going to tell me my cost - shares bought multiplied by the price.
Let's say. I buy one share, it's going cost me $141 because that's the price.
Dividend each quarter is shares bought multiplied times the dividend that you get. So, if you get two shares, you're going to make a $1.68 - because it's two times 84 cents, that's what you're going to get. And per year, this is just multiplied times four because there are four quarters every single year. You increase it times four to get your $6.72.
Here's the real power behind dividends, let's say you had a thousand dollars, how much could you make from Johnson and Johnson?
If I had a thousand dollars, I had six shares that would only put me at about $846 of cost in investment. If I have seven shares, I'm right at $987, so that's about a thousand dollars. Unfortunately, you could only buy about seven shares of Johnson & Johnson and your dividend every quarter is $5.78. Doesn't sound like a lot of money. It's not life-changing of course and you know per year you're only going to make an extra $23.52. That doesn't seem like a lot, but remember the dividends will grow. But on a percentage basis and relative to as these things scale up this will start to appear huge for you.
One thing to remember is that your earnings are not just from dividends, you have a stock appreciation. So as that company grows, so will your profits. But if you're looking at only the power of dividends, let's say you're taking this and you're going into 500 shares. Now, granted that's a $70,000 investment but if you had a retirement plan, $70,000 is not a lot. Every quarter you make $420 or per year about $1680.
This is how the rich get richer. This is how wealthy people make a lot of money. Instead of keeping their money in the bank, they put it into stocks or things that appreciate and pay them back dividends. They use the power of money so they may take this 2,000 shares and that might be ten thousand shares.
If we go ahead and mark everything, let's say ten thousand - that's a $3.5M account.
In a stock market world, it's not a lot of money. Remember, that hundred dollars over thirty/forty-year period, already at four/five thousand dollars in appreciation. The same thing here, I mean if you started with a $10,000 account, multiply that times a considerable percentage, and it's going to grow. So think about the bigger picture. It's not just about a return this year. It about returns this year plus next year plus taking that money reinvesting it and builds on that.
You can see right here, just from their annual income dividends, you're looking at making about 78,000 dollars a year from dividends on a $3.5M account.
Let's say you're wealthy, let's say you have much more money in your account and we'll put 25,000 shares on each. Let's say you have $10M or so and you've got $8M in stocks. Now, you're almost making $200,000 a year from dividends. You could sit back relax, and you're making $200,000 a year. That's the power of money. That's the power of dividends. That's the way wealth is built for the rich.
If you want a piece of this and understand how money is being made, you need to know how to put your money and get it to work rather than leaving $200 on the table sitting and doing nothing. You're better off to get at least just one share of something because then that money's going to work for you that $200, or in this case $141, at least is going to bring you $3.36 every single year from that dividend, of course also appreciate with time.
This is how wealth gets built, and you can see the power of it mainly as accounts start to grow.
If you're starting small, don't get discouraged. Just having a hundred shares right here and having let's say another 50 shares here and ten shares here is a starting point. You might only have $25,000 to invest, but at least you're making $482 every single year. That $482 allows you to buy another five shares. So now, you're at 105 shares, you're at $500. The next year, you might buy a couple more shares.
Thirty years later, with time, you'll be at, let's say, 250 shares. So now you're making $1,000 a year. That's the power of it. It starts to grow exponentially because you're taking this money that you're earning and you take it, and you put it back and get more shares. That's really where the growth happens, and that's how wealth is built, and that's the power of dividends.