Should You Take Dividends From Your Investments?

Mind blown! About a week ago I received a surprise letter mail from my employer! A good surprise!

I opened it up and low and behold I received a dividend distribution to the toon of $1.83. That’s right! You heard me right! I just made free money to go buy a McDonald’s cheeseburger and Krispy Kreme Donut! I didn’t need to do a darn thing!

Boy was I tickled pink!

I don’t know about you, but I really like receiving free money. Money where I didn’t need to lift a finger!

Receiving this small check really opened my eyes. Opened them to how real dividend checks are for real people! Most often our dividends are just reinvested and get lost in the digital financial world. Wouldn’t you agree?

It was something about physically receiving this check that made it feel real and worthwhile. I think it makes everything a reality, because I imagine how I can reuse this cash. Reuse it to replace my income, pay for X/Y/Z or just go blow it on a burger and donuts! When these ones and zeros just get digitally dumped into an account we often don’t realize what we are gaining by investing in passive incomes.

After I got this check, it got me thinking…thinking about why dividend investing is a good idea and why you should take your distributions. Here are my reasons for doing dividend investing for another passive income stream.

  • Opportunity to buy good quality large cap stocks – a lot of large cap stocks offer dividends as an alternative means to price appreciation. This is as opposed to growing the price based on performance. I prefer to invest in stocks that have very little debt, low P/E ratio (below 22), and a history of continually increasing dividends.
  • Creates a “moat” around your regular 9-5 jobWarren Buffet reads so many financial reports of businesses that he is thinking about investing in. He is looking to first see if they have a good moat around them to protect them. His definition of a moat is, a defensive barrier that a business can have to impede an attack from other competitors. The same should be true of you! A dividend portfolio creates a protective barrier for you in case you lose your job or are unable to work. That is why investing into cash generating assets is so important as opposed to taking on more debt, a larger house, and more trips.
  • Dividends can be used to feed other investments – the nice thing about receiving dividend distributions is that those investments can feed other investments. This allows you to distribute your risk to other investments and not be invested in one particular asset class. For example, you could use stock dividends to pay for starting up a vending machine business or use the dividend distributions to feed your lendingclub investments. It all depends on where you want to distribute them to. The important thing to remember here is that if you do take distributions from your dividends, then #1) be sure to put your money to work for you immediately, and #2) be intentional about where you want this money to flow to.
  • Another ability to make my money work for me while I sleep – I do like working, but what is better than work that you enjoy? Working while you sleep! Ha! Ya…it is hard to believe that a person can have a job, and not to have to be doing the actual work. All of these great companies are doing the work for me while I sleep. For the average 9-5 worker this concept is hard to believe, because so many people are ingrained to think that their primary employer is the only one they are married too.
  • Requires very little effort in maintaining – when I was backyard chicken farming last year it took a lot of continual work to raise my 30 chickens. I couldn’t stop maintaining them. If I did, then my chickens would die or get some disease from all the debris. All of these chickens produced for me a small income stream, but it required a huge amount of daily effort. Over five years of doing it I realized that the effort + income = negative return on time. I was only making about $6 a week from selling one or two dozen eggs. To be honest, it wasn’t about making money from the eggs, but more so about the concept of showing my kids how to work hard for your food and money. Looking back though I realized that I could get my kids involved in other hard work that produced a greater return on time. Dividends investments are another great example of something that has a positive return on time. If you invest one or two hours per month on maintaining and reviewing your dividend investment accounts, then it can have HUGE month over month returns on your time investment!

Overall, I think dividend investing can have huge long term benefits, and are another great alternative to having a job that requires you to be there to get paid. In my own case, I’m doing lots of research on which blue chips stocks are good to invest in, and preparing to make a larger step into dividend investing after my house is paid off (Aug 2018). It is hard not to get side tracked with paying off the house, and diverting some monies toward starting a small dividend portfolio. Ugh!

I’d like to hear from you on whether you think dividend investing is a good idea or not. What are the benefits and negatives? What has stopped you from buying dividend paying stocks? Leave a comment below and let us know your thoughts!

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