The Low-Key đź’¸ Cheat Sheet
For once, lets be honest, who doesn’t want to escape the 9 to 5 rat race, retire early and follow their passion or just roam the Earth. It wouldn’t kill to have a side income which pays you monthly, or even weekly for that matter! This is where the concept of passive income comes, aka making money while you sleep, quite literally!
Well there’s no such thing as “Passive Income” or in other words, there’s no way to make money without doing anything at all unless you believe in the stimulus checks which the Federal Reserve prints out of nowhere. Now that’s actually free money!
In order to create the constant source of income, one has to put in the time and the effort to reap the benefits. Now there are various ways to get started in building various sources of income. These range from starting a YouTube channel or a podcast, to selling an online course or becoming an affiliate marketer, the list is endless, but among all there’s one which requires the least amount of skills and work, but a whole lot of patience, some initial capital and doing your own research to start with.
“Dividend Investing” aka stocks which pay you quarterly or even monthly in some cases. Simply put, invest in quality stocks which pay out small amount over the years. These small amounts, known as dividends can be reinvested back in buying more stocks of that company, thus increasing your overall quantity owned. This increases the dividends you receive next time. Well here’s your blueprint to success! Just rinse and repeat.
Now let me just go on record by saying that your goals could be different compared to mine. Based on your goals and time horizon, you can choose your dividend portfolio to either be growth oriented, i.e. companies which have been consistently increasing their dividends Year-over-Year at a sustainable rate, or you can go with a more conservative stance, i.e. a portfolio with companies which have had an excellent track record of never missing out on their dividends. Or better yet, a combination of the both!
As simple as it may sound, picking dividend stocks for your portfolio can become a daunting task if you don’t know the right metrics to look for while doing so. Fret not as I’ve a list of metrics which can help you:
- Dividend Yield: Put simply, its the amount of dividend the company pays annually divided by the share price. Based on your risk appetite, you could go for a higher yield, or a lower one if conservative is your taste.
- Payout Ratio: This ratio is the amount of dividends a company gives out to its shareholders out of its earnings. So a payout ratio of 50% would mean that the company is handing out 50% of its total earnings to the shareholders in form of dividends. (Do you think that a payout ratio of 100% makes sense? Let me know in the comment section below)
- Consistency: Now this is an important one for me. Make sure that whatever company you choose has a good track record of never missing out or cutting its dividends, be it in a market correction or a pandemic. Always remember, consistency is the key!
- Earnings: Growing Earnings = Growing Dividends, if the earnings aren't consistent and growing, there will come a point when the company will be forced to cut its dividend or even stop altogether, obviously you wouldn’t want that!
As technical as these terms may sound, trust me, it doesn't get any easier. Once you get started, it will be a cakewalk! If you ask me, the ideal time to start was yesterday, but the second best time is today. Money is ultimately a medium for exchanging value, and the way to make passive income is to provide value in such a way that it’s not directly tied to your time. Just set it and forget it! Be it achieving FIRE by your 30s, or funding your trip to Europe, patience and dividend investing can help you achieve literally anything!
PS: this is not a financial advice, but an opinion. I wouldn’t recommend you short squeezing your way into stock markets! That said, always buy the dip.
