This falls into a completely different category of content here at CoryG Fitness. Many of you have asked questions on the subject of wealth building and things I invest into.
What About Dividends?
One class of investing I’m particularly interested in is dividend investing. Many people hear this term but don’t really understand what it means. Straight up, I was the same way despite having a great financial planner and being sponsored by companies such as Robinhood.
I understood at a basic level, but fully understanding what dividend investing can produce is crazy to me.
Below we have the example of Chevron, sourced directly from Investor’s Business Daily. Chevron is currently sitting at about $110 per share (as of 2/11/20). Each share, over the year, will make $1. The example below shows $0.25 per share.
Let’s say you have 100 shares that pays you X amount of dollars for the year, many don’t get excited with a 4-5% yield.
Here’s the Way I Look at it…
Every time I invest, whether it’s $5-10 or $5,000-10,000, I want to make sure that I’m getting paid passively on that income. Passive Income is something you can build, just like a body. It’s the long game.
It’s having a consistent schedule and plan when it comes to investing your money. Having these types of investments in my portfolio allows me to accumulate wealth with the long-term in mind.
What I Love About It
Until you need the check, you can have it set automatically to reinvest the earnings. Each quarter you can reinvest the earnings to buy more shares, ultimately creating more wealth.
You invest the money to earn the dividend, the dividend starts kicking over passive income, then it compounds over time. It continues to snowball.
My View on Dividend Investing
I’ve been heavy into this subject over the past year and a half. Paying attention to the stock market more closely and educating myself regularly. Now, I know how to create income over time using dividend investing.
I know that with X amount of money invested in dividends will allow X amount to be reinvested in more shares to produce even more passive income. Whether I touch it or not. It doesn’t matter whether you have $100 invested or $100,000 invested, it’s all relative. Anyone can apply this principle.
It could be one share in Chevron or AT&T, it doesn’t matter. They both reinvest at the same rate. The numbers change with how large or small they are.
If You’re on This Path
You invested $500 this year, and regardless of whether the stock went up or down, it turned into $570. Then, because of the reinvestment it turns into $620.
Once you’re retired, you can switch the earnings from reinvestment to income in your pocket! You start to get a check monthly, quarterly, etc. It becomes another form of salary from you.
People Are Missing It
Many are missing the mark. They think that if they put $5,000 in, I’m only making $300 per year. What happens if you do this consistently over time, set it to reinvest, and the stock market continues to grow?
That $5,000 annual contribution to buying dividend stocks is now kicking over a new source of income. All of a sudden you can knock out your house payment.
Source: Investor’s Business Daily
Chevron as an example
What Is A Dividend?
So, if a company declares a 25-cent quarterly dividend and you own 100 shares of that company, you will receive a $25 payment that quarter. If that payment remains consistent for a year, you would be paid $100 just for owning those 100 shares.
There are several types of payouts: Ordinary, stock and special/extraordinary. Ordinary is the most common, according to online brokerage E-Trade Financial. Some companies may conserve cash by making payments in the form of additional shares of stock.
In uncommon cases, a company can make a special or extraordinary payout. During unusually profitable years, companies can announce a special, one-time payment to distribute additional cash or stock.
How Does A Dividend Work?
You buy a certain number of a company’s shares. For example, let’s say you own 100 shares of Chevron stock. The company announces it will pay out a quarterly dividend. In the case of Chevron, the oil giant said Oct. 30 it would hand out $1.19 per share to all holders of common stock.
To determine your share of profits, multiply the dividend by the number of shares you own. In this example, you would receive a quarterly payment of $119 for your 100 shares.
A company will generally send a check, or make a payment to your brokerage account. Some companies offer what’s called a dividend reinvestment program or DRIP. This allows you to reinvest the payment back into the company’s stock, sometimes at a discount.
When Does A Company Make A Payout?
There are several important dates to keep in mind when determining whether to buy a dividend stock. In the Chevron case, the company said it would make the payment to shareholders of record as of Feb. 15. That means anyone who owned the stock as of that date received a payout.
E-Trade Financial notes the record date is important for stock buyers and sellers alike. The ex-dividend date is a business day before the record date. Then an investor can buy a stock but won’t receive the most recent payout. To compensate for this, the cost to buy a share is usually reduced.
On the flip side, if you’re looking to sell — but still want to get the most recent quarterly payout — you must wait until the ex-dividend date to do so.
How Do You Calculate The Yield?
You can calculate the annualized dividend yield by dividing the annual payout by the stock price. So, if Chevron’s quarterly payout of $1.19 remains consistent for all of 2019, the company will end up paying $4.76 per share in dividends for the year.
Chevron Corp (CVX)