Dividend Investing: Building Passive Income
Understanding Dividends
Dividends are regular payments companies make to shareholders from their profits.
Key Terms
- • Dividend Yield: Annual dividend/stock price
- • Payout Ratio: Dividends paid/net income
- • Ex-Dividend Date: Cut-off for next payment
- • Qualified vs. Non-Qualified Dividends
Dividend Aristocrats
Companies that have increased dividends for 25+ consecutive years.
Notable Examples
- Johnson & Johnson (JNJ)
- Procter & Gamble (PG)
- Coca-Cola (KO)
- 3M (MMM)
Building a Dividend Portfolio
Dividend ETFs
Exchange-Traded Funds that focus on dividend-paying stocks.
Popular Options
- • Vanguard Dividend Appreciation (VIG)
- • SPDR S&P Dividend ETF (SDY)
- • iShares Select Dividend ETF (DVY)
- • ProShares S&P 500 Dividend Aristocrats (NOBL)
Individual Stocks
Key factors to consider when selecting dividend stocks:
Financial Health
- Consistent earnings growth
- Strong cash flow
- Manageable debt levels
- Sustainable payout ratio
Growth Potential
- Industry leadership
- Competitive advantages
- Market share growth
- Innovation pipeline
The Power of Dividend Reinvestment
Compound Growth Example
$10,000 initial investment in a stock paying 4% dividend yield:
Taking Dividends as Cash
- • Annual Dividend Income: $400
- • After 20 Years (8% growth):
- • Stock Value: $46,610
- • Total Dividends: $8,000
- • Total Value: $54,610
Reinvesting Dividends
- • Dividends Buy More Shares
- • After 20 Years (8% growth):
- • Total Value: $68,485
- • Additional Wealth: $13,875
- • 25% More Than Without Reinvestment
Calculate Your Dividend Income
Use our investment calculator to project your dividend income. Learn about compound interest to understand how reinvesting dividends accelerates wealth building.
- Compare reinvestment vs. taking dividends as income
- See how different yield rates affect long-term returns
- Plan your path to financial independence
Explore different investment types and learn about risk vs. reward to build a balanced portfolio.