Dividend Investing: building passive income

Dividend investing focuses on stocks that pay regular cash distributions. It's a proven strategy for building wealth and generating passive income over time.

Key Metrics

  • Dividend Yield: Annual dividend ÷ Stock price. A 4% yield means $4 per year for every $100 invested.
  • Payout Ratio: Dividends ÷ Earnings. Below 60% is generally sustainable; above 80% may signal risk.
  • Dividend Growth Rate: How fast dividends are increasing year over year.
  • Years of Consecutive Increases: Dividend Aristocrats have 25+ years of increases.

Dividend Yield vs. Growth

High Yield (4%+)
More income now, but check sustainability
Dividend Growth (1-3%)
Lower yield, but growing payments

A company growing dividends 10% annually will double your income in ~7 years.

Warning Signs

  • Yield too high (>8%): May signal the market expects a cut
  • Payout ratio above 100%: Paying more than they earn
  • Declining earnings: Future cuts are likely
  • High debt levels: Interest payments compete with dividends

Building a Dividend Portfolio

  1. Diversify across 15-30 stocks in different sectors
  2. Mix high yield with dividend growth stocks
  3. Reinvest dividends (DRIP) for compounding
  4. Focus on companies with sustainable payout ratios
  5. Consider Dividend Aristocrats and Kings for stability

Ex-Dividend Date

You must own the stock before the ex-dividend date to receive the next dividend payment. The stock price typically drops by the dividend amount on the ex-date.

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Intrinsic Investor is for educational purposes only. Not financial advice.