When to start investing in dividend stocks
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
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building wealth and consider hitting
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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
coca-cola
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
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