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  • Writer's pictureDarius Smith

Dividend Investing - The Only True Passive Income

At Wealth is my Worth we are 9-to-5'ers building wealth through our 9-to-5's and not entrepreneurship or side hustles so our extra income comes from our investments paying us money. So in this article we learn how dividends can speed up our wealth journey.


First, What's A Dividend In Investing?


Everybody loves to talk about passive income right? Well that's exactly what a dividend is! Dividends are simply profit splits. Think of them as your investments having babies, so dividends are lil baby paychecks with your name on them. So just for owning a stock, you get paid every year, and no, you don’t have to sell the stock to get paid.


When you own stock in a company, many of them pay dividends to shareholders; not all do, but many do. Like, for instance, the tech giants Apple and Microsoft do pay dividends, but the other guys Google and Facebook do not pay dividends. Whenever generous companies offers investors dividends, this is how it works. The company takes a portion of their profits they earned that year and split it up between every shareholder according to the percentage of the company they own.



How Much Exactly Do Dividends Pay?


Dividends have a lot of potential, but they pay a small amount per share owned. A small amount means like less than a dollar per year in most cases. For instance, Apple pays $0.24 per share per quarter which is equivalent to $0.96 per year. So if you owned 100 shares of Apple you’d get a check for $24 every 3 months. The straight answer for dividend payouts above is obviously underwhelming, but before you give up on dividends already, give me a chance to paint a better picture.


"My Goal: $120,000 a year in dividend income. $10,000 every month. $329 every day." – @DecadeInvestor on X

Can Dividend Income Actually Make Me Rich?


To make a bunch of money from dividends like the Decade Investor plans to do, you could obviously just buy a hell of a lot of stocks. But you could also optimize your portfolio strategically for dividend income to increase your yield percentage and overall dividend income.


The above average investor can have a portfolio that returns up to 6% from dividend payouts alone. The traditional first big investing goal is having $100k invested. Using a $100,000 portfolio with a 6% yield as an example, you would earn an additional $6,000 per year from dividends which is an extra $500 cash per month. And remember, this is in addition to the profit you make in equity from your investments growing!


Average dividend investing yield pyramid

Case Study: Dividend Comparison


We mentioned above how the dividend income from Apple pays $0.96 per year. Let's now compare Southwest Airlines who pays $0.72 per share per year. With the information we have so far, Apple’s dividend pays more, but then we compare the yield percentage. AAPL - 0.5% yield VS LUV 2.7% yield (huge difference). Why is the yield so important? The most simple explanation for our yield comparison is Apple's stock cost about 8x per share of Southwest Airline stock. To make it make sense, let's calculate the dividend payout if we invested $1,000 in each company.


If you invest $1,000 into Apple you’d get 5 shares paying you almost $1 each making $5 per year in dividend income. Similarly, with a $1,000 in Southwest, you would get 40 shares each paying $0.72 per which would pay you $28 per year. LUV's dividends out perform AAPL by over 500%. So that makes LUV a better stock to invest in than Southwest right?


AAPL vs LUV dividend investing comparison


Don’t Forget Your Investing Fundamentals


Before we get overly ambitious about dividends, we gotta remember that dividends are just the icing on the cake. But what’s the actual cake part of the cake? It’s the actual unit price of that stock that is tied to how valuable the company is. What I'm saying is, we still need to have solid investment fundamentals before having the slightest concern about dividend payouts. If you lose money on your investment you can't justify it with dividends; they just don't pay enough for that. Remember, investing is about buying low and letting it grow!

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