I think that dividends are beautiful because it is a form of purely passive income.
I have started dividend investing over 10 years ago and initially I was focused on acquiring dividend income (to a fault really) without regard for asset allocation. This produced a sluggish portfolio that didn’t go anywhere near matching the Index. More recently in my portfolio I still have my favourite dividends but am more focused on growth (hence more emphasis on exchange traded funds without as high of a dividend yield as individual companies). Once I acquire a suitable nest egg amount I will focus more on dividend investing and less on growth as then I will be more interested in passive income at that point.
For those of you who don’t know what a dividend is:
A dividend is a distribution of a company’s earnings to it’s shareholders.
I must admit it’s still very nice to have even a small amount of passive income right now (even though it’s not very much) while I am still working. Dividends are great, they really are.
This idea of why dividends are like ocean waves originated from my husband who is a huge fan of dividends as well.
why dividends are like ocean waves
Imagine yourself on a tropical beach, enjoying the sun and hearing nothing but gentle ocean tides lapping on the shore.
Yes, this is your financial independence and you’ve worked hard to lie on the beach and listen to comforting, soothing, ocean waves. These ocean waves are giving you tranquility, just like dividends offer you tranquility and passive income and peace of mind.
Waves and tides are created by the wind and by the gravitational pull of the moon. Dividends are created by the companies that you purchase as a shareholder. The energy is transmitted by waves and dividends (in this case, energy transmitted by waves and money, or dividend payout, is transmitted by dividends).
Some Waves are Bigger than Others
Some months your passive income through dividend investing are larger than others. Usually the months that are quarter end are the ‘big ones’ and the waves are bigger on these months, since many companies pay out their dividends on a quarterly basis instead of a monthly basis.
Sometimes the waves decrease, and companies cut their dividends unfortunately. Other times, the waves increase slightly because companies increase their dividend.
Sometimes a Sailboat Comes By…
Sometimes you’re enjoying the soft, smooth waves and a sailboat rides by and causes a large wave that is unpredictable from the regular consistent waves. This is called a Special Dividend (or Extra Dividend) according to Investopedia, which is a non-recurring (meaning not regularly happening) distribution of company assets.
The Waves are Constant
Waves, like dividends, are constant.
Dividends, like ocean waves, occur regularly and consistently, whether they are monthly or quarterly.
They are reliable and don’t usually stop. They may even increase (as global warming increases? and the oceans increase in volume) over time to protect against inflation.
Unfortunately, Sometimes the Waves Stop
Well, unfortunately sometimes the waves do stop. That’s when you’re transported from the ocean to the lake, where there are no waves, unfortunately. Not as scenic and tranquil as the beach but life happens. For example, Husky Energy (HSE.TO), a tried and true consistent dividend paying since 2001, cut their dividend at the end of 2015 and I have yet to see it come back (sigh).
Okay, that’s enough analogy… now time to go back to reality and working on building that dividend portfolio to five figures!
Readers, are you a big fan of dividends like myself?