How To Invest In Dividend Stocks For Passive Income

so in this video I'm going to share how

you can earn passive income by utilizing

something known as dividend investing so

investing in a dividend stocks it's

something that's been around for quite

some time but something that you can

consider taking advantage of in order to

earn some extra cash on a monthly basis

so we're gonna dig into that in this

video now there's really two different

ways of making passive income we've

mentioned this the past before so they

don't touch on it too much but

essentially you're putting something up

front to then reap the rewards of it

later and you can use time upfront which

some people don't have or you can put

money up front to then earn money off of

your money this is how the rich stay

rich they invest money and then make

money off of their money no you don't

have to have a lot in order to start

with this I started with literally fifty

dollars with a dividend investing and

have built it up over time now when I

started I didn't have a mentor I didn't

have someone to show me how to do it

teach me how to do it but I just used

free resources online and various

different books dozens of books to learn

how to actually invest into dividend

stocks and invest into various companies

to then earn money from my money so you

can do this anybody can do this it's

very possible so if you're new here to

the channel you want to learn more about

investing or personal finance or

building wealth and consider hitting

subscribe button we do our best to help

as many people as possible

learn as much as they can about building

financial freedom so let's get started

with this video let's not beat around

the bush let's just start with this now

what is a dividend let's kind of jump

into that before we actually go into the

details I'm also going to share some

mistakes that I made in the past when I

first started as well but let's talk

about what a dividend actually is so

essentially it's just going to be a

payment that a company's going to give

you for essentially owning that company

stock that's the best way to think about

it's almost like a little bonus or a

cash payment that they're gonna give you

either on a quarterly basis sometimes on

a monthly basis or even in some cases on

an annual basis depending on how they

structure it but they're gonna be paying

out in cash for really a bonus for you

owning that company stock so I'll give

you an example here of how this actually

works and how you can take advantage of

this but why is it that some companies

pay dividends and other companies don't

if you look at say PepsiCo which I'll

show you a little bit more in-depth but

if we look at Pepsi they're paying

almost about a 3% annual dividend of

versus maybe if you look at Amazon or

Facebook or Netflix they don't pay

dividends so some companies pay these

cash payments as dividends and all

don't and the reason for this is because

one's generally in the tech sector or

companies that believe that they can

reinvest this money back into themselves

a little bit better

generally won't pay out dividends but

rather just take the profits and put it

back into R&D or various other things

that they can then grow their business

faster and hopefully grow their stock

faster then dividend stocks that are

generally more well-established you'll

see them as blue chip stocks companies

that maybe have been around for quite

some time but like to pay out to attract

new investors with that dividend so

let's take a look at PepsiCo just to

give you an example here as to how you

can actually take advantage of this and

kind of go over some details here but

what I'm using here is just a free

resource you can use yahoo finance gives

you a little bit of information about

this company and a nice decent

understanding and an overview of this

company now you can also go on to the

company's website look at their form 10k

look at the various other investor

relations page just about every company

that's traded on the stock market is

going to have an investor relations or

investor resources page on their website

and they're gonna have a lot of

information on there so if you're ever

considering investing into a company I

just go on to their company's website

and we're just going to google and type

in investor relations for Pepsi or

investor relations for coca-cola it'll

bring you to the company's website and

that's where you'll be able to find a

lot of information about that actual

company and their earnings and their

different financials we're going to go

over some of that later on in this video

as well but let's take a look at Pepsi

here to show you how you can actually

take advantage of a dividend investing

so for example here so Pepsi one hundred

thirty two dollars per share for this

particular stock that means if you have

one hundred thirty two dollars of your

money invested into Pepsi you could be

earning about two point nine eight

percent as a dividend payment from that

company so about $3.82 in the course of

a year as a cash payment to you paid out

on a quarterly basis so split this $3.82

over four different quarters so every

three months you'd be getting one-fourth

of this $3.82 so this might not seem

like a lot of money you say well gee

$3.82 I can barely buy a cheeseburger

and you know a store at a fast food

place how is this worth it well the key

here is that you're building this up

over time and what you can do is maybe

you only have one share of Pepsi $430

but over time if you had

10 shares or a hundred shares this could

really add up or even a thousand shares

you can be making thousands of dollars

per year in dividend payments that you

can then use towards car payments or

Netflix subscriptions or various other

things that you want to spend money on

and it seems to be very sustainable over

the long run so what we can do here is

if we're using Yahoo Finance go to the

statistics right here and then you can

look a little bit more about their

actual dividend and their other

financial metrics so you can take a look

at but looking at their dividend there's

a couple things that you're gonna want

to be aware of one of them is the payout

ratio this is a very important financial

metric that you want to consider when

looking at dividend stocks and the

payout ratio is essentially just going

to be the dividends as a percentage of

their earnings so if you're seeing this

number quite high say over a hundred

percent this could be somewhat of a red

flag showing that maybe this company

isn't able to actually sustain those

dividends that they're paying out and

this is what I really want to caution

you on see when I mentioned that I

started pretty young in the stock market

nobody was really showing me the way so

because of that I made a lot of mistakes

when I was younger and one of them was

that I was falling into dividend traps

and I don't want to see people do this

for themselves

so essentially dividend tramps what can

happen is a company might have a very

high dividend to attract investors and

then either slash that dividend as a new

investors come in or just not be able to

increase their stock price because

they're paying out so much money and

dividend payments that they're not able

to reinvest back into their own business

so to give you an example here when I

started investing I would look at

companies honestly okay well perhaps

he's paying a 3% annual dividend and

then I'd find another company as paying

6% dividend and then I say well here's

this other companies paying a 12% annual

dividend this looks like such a good

deal and when something looks too good

to be true in a lot of cases it is

that's how it works in the investing

world when something just looks too good

to be true there could be something

fishy behind the scenes that you might

not fully realize at the moment so if

you're seeing companies that are paying

out very high dividends you want to look

at the payout ratio you want to look at

their history of paying dividends as

well as their stock price because

something else you want to consider is

you want to look at this company's

dividends over their lifetime but also

their stock price and factor those two

into the equation to give you an example

here say that we have company one here

inverse versus company two right now

company one pays out a 6%

dividend but their company stock is

losing 4% per year over the past ten

years well your total gain on that might

only be about two percent per year

because you're getting a high dividend

but the company's not growing it's

actually declining so that's actually

not that great versus maybe another

company that's paying out a 3% dividend

but growing at a four percent rate so

you could be earning seven percent on

that one with a smaller dividend but but

a company stock that's actually

increasing so that's a great example for

something like Pepsi they've been

increasing over the long run saying for


I've been increasing their dividends as

well as increasing their stock price in

the long run which is something you

definitely wanna consider so don't just

look at the dividend I sort of think of

a dividend payment as really a cherry on

top it's not the first thing you want to

look at but certainly something that you

do want to factor into the equation as

to whether you're going to invest into

that company or not invest into that

particular company now there are a

number of different financial metrics

that are going to be incredibly

important when looking at a dividend

stocks one of them being the price to

earnings ratio this is especially

important for people who are investing

into those blue chip stocks where their

stocks that aren't necessarily high fast

growth but more so well established

company so the price to earnings ratio

p/e ratio you're gonna have to take very

close account into that and then also

looking at the earnings per share so how

much money is this company actually

bringing in per share what are the

earnings on that and another one that

you were gonna want to heavily consider

now as I mentioned earlier look you can

learn so much free information on the

internet on in websites like

investopedia which I have used heavily

in the past as well as just reading free

books from your local library now I will

leave some links to some different books

down below some of the best books that

I've read on investing to help you build

a nice knowledge base for yourself but

like I said you can get these at your

local library or you can pick them up

for probably eight dollars or ten

dollars off of Amazon and then read and

really learn a lot about investing and

really the key here is to think about

the long term rather than the short term

now one of the benefits to long-term

investing with dividend stocks is that

you're actually gonna have a lot of tax

benefits off of it as well so I'm not an

accountant so you have to consult your

own CPA or accountant here but

essentially with dividend payments a lot

of them unless there's certain types

such as release I believe but with a lot

of dividend payments

we seen as a long-term capital gains so

the most you could be taxed on it is

about 20% in the United States anywhere

from 0 to 20% versus regular income tax

which could be up to almost 40% annually

on those income taxes through your

regular job so capital gains tax

long-term capital gains tax is another

reason why a lot of the rich people are

paying less in taxes this is why Warren

Buffett famous quote says that he pays

less in taxes as a percentage of his

income than his secretary had so really

interesting he has billions of dollars

and he's paying less in taxes the reason

for it is because he's taking advantage

of some things like long term capital

gains which is especially nice for a

dividend payment so how how much money

can you actually make with dividend

investing is this actually something

that's sustainable and is it something

that you can become rich off of and what

I want you to think about here is let's

say that you're earning 3% annually from

your dividend payments as well as maybe

some stock growth or the time maybe say

3% stock growth but will not factor that

into the equation we're talking about

cash coming in to your pocket now if

you're starting with $50 like myself

over the course of a year your dividend

payments you might get a dollar you

might be able to go to McDonald's and

find something on the dollar menu and

maybe get it with that dividend payment

but if you didn't build this up over

time so you can build this up to

$100,000 well $100,000 3% annually would

be about $3,000 which I believe is about

$250 a month I don't know if I did that

math way in my head but about $250 a

month in cash coming into your pocket

that you can then use on various

expenses and what's interesting about

this is that it's in many cases Cena is

quite sustainable so assuming that you

are diversified throughout your

portfolio you have various different

companies and you're not putting all of

your eggs in one basket in one company

this could be something that could be

very sustainable over the long term so I

do want to leave a word of caution

because as I say it could be very

sustainable but there are times where

the market declines will see recessions

we could have a depression there are

times of hard economic times you want to

be very careful of and think about

before actually putting any money into

investments there are risks and you need

to be aware of that but what I

personally do is I reinvest the

dividends that I get from these

companies back into these companies or

various other different types of

investments and I think this is really

the key to finding success

for the long term instead of taking

those dividend payments and spending

them on your mortgage or spending them

on car payments actually just

reinvesting them back into various other

companies or various other different

types of investments and that is how you

can build wealth over the long term look

and dividend investing passive income

through dividends it's definitely a

long-term game it's not something you

jump into and get out of in a couple

weeks and make a lot of money it's not

gonna make you a millionaire overnight

but it's something that could

potentially make you a millionaire over

your lifetime and it's something that is

been proven by millions of people have

done this and they've done very well

with it so it's something you want to

consider doing so what if you personally

don't feel as though you want to invest

in individual companies or go through

the process of analyzing a company and

looking at their financial statements

and their income statement statement

cash flows and looking at their balance

sheet and calculating different

financial ratios if you don't want to do

that there are other options out there

that could have various risks but also

could be beneficial and something like

that could be index funds or ETFs that

can essentially track certain types of

dividend stocks so a good example of

this would be something like a Vanguard

high-yield to dividend fund so I believe

the expense ratio on this is about 0.09

percent so it's a very low fee to get

into this and Vanguard very reputable

company we've talked about them before

on this channel I'm not associated with

them but they manage trillions of

dollars worth of assets for lots and

lots of clients so Vanguard essentially

sets up these ETFs or these

exchange-traded funds that will sort of

capture many different dividend stocks

within their portfolio so if you don't

want to invest into one company or just

a couple of different companies you

consider putting some money into an

index fund or sorry an ETF that you can

then hopefully do well over time I

believe their average dividend is close

to about 3% for those different dividend

stocks that gives you a nice basket of

different stocks that you can get into

without having too much experience in

the markets so those are some different

ideas for yourself look if you want to

learn more about investing or personal

finance for building wealth consider

hitting that subscribe button really

would appreciate it if you found value

in this video drop a like and I'll see

everybody in the next video