I love so many things in life: Of course my wife and my daughter! I have to admit I also have a love for some material things as my roadbike. I also have a deep love for a few concepts as well. Concepts like FIRE, compund interest and of course dividends.
In my speech to my wife at our wedding I tried to make the perfect love declaration (only interrupted by my sobbing). This time I will make a love declaration to dividends.
Love at first
My first dividend came from a stock, I no longer have in my portfolio: Microsoft. I bought the stock because I found it undervalued and liked their products. Then suddenly, a few months after, a small amount of money got transferred to my bankaccount from Microsoft!
I wish I could say, that my world was never the same after that, but sadly no. It did’nt make that big a difference for me, and a few months later I had to sell all my stocks to make the down payment for an apartment.
When I recently got back into investing, I needed a strategy to approach the market. Shortly before I had read the book by Jakob Lund Fisker called ERE – Early Retirement Extreme. And that really DID make a huge difference for me! His approach to investing was to get his expenses covered by passive income. (He also cut his expenses to an absolute minimum, and that I’m not nearly dedicated enough to copy.)
Free but not free
The argument against dividends are:
- The company should keep the money – that can use the money to make even more money.
- You have to pay tax of dividends (in Denmark between 27 and 42 %!!!)
My best arguments pro dividends are:
- You can use the money to differentiate your stock allocations.
- You pay tax regularly instead of a big pile when you sell your stocks eventually
- Dividends motivates you and keep you on track even when the market dips. (you even enjoy these moments because you can collect some high yield stocks at a discount)
Dividend stocks are not the answer if you have a huge pile of money, that you want to invest right now and doesn’t know that much about investing. Then I would definetly buy passive index funds! No question about that.
Dividend stocks are perfect for people like me, who invest small amounts every month with a long-term focus. I wan’t the money to grow steadily.
Motivation every day
The safest way to earn money in the stock market is to have patience. Patience requires motivation, and dividends are a perfect way to motivate you to stay on track.
Let me give you an example.
I have bought Essity (ESSITY-A). A Swedish company that produces hygiene and health products. One of the things they produce is paper and soap dispensers for commcercial use. That means, I use the brand several times a week when I use a bathroom at work, at the gas station or at the library, when the paper towel dispenser is from TORK, which is owned by Essity.
This may sound a but strange, but using the brand actually motivates my in my stock strategy because I use a company’s products, which generates money for me. The same goes with coca-cola, Apple, McDonalds or any other brand that pays dividends.
I wish I could end this post with intelligent phrases and well-thought arguments, but sadly the truth is very simple:
I love dividends
Dividends make me happy every time I see money transferred in to my brokerage account. The accumulating process that I’m in keeps me interested in the stock market and eager to find the best dividend stocks.
It’s a win-win for me. When the market goes ups, my stocks are up as well. When the market takes a dip, I can purchase stocks with a discount. I’m not investing money I can’t spare, but my wife and I refer to the stock acccount as the “dream account”. Meaning the money will in the future be the fuel to some of our travelling dreams or hopefully give us the chance to quit our jobs permanently.
Dividends. You are the one for me.