The fact is that you cannot be truly financially independent until your passive income pays for your lifestyle and there is extra funds to continue growing your investments.
October 2010, 2 years after the financial crisis “the great recession” hit, I purchased a house in Maryland, USA. I thought I was getting a deal as values have dropped about $100,000 on this home. I paid $315,000 for it. Two years later, the house was worth only a measly $108,000. However, throughout the entire time, my rental income was higher than my mortgage payment. Fast forward to today, the property value has rebounded very well and I collect even higher rental income. The bottom line was despite the value of the property gyrating up and down, I still increased my wealth through the rental income.
Dividends are like rental income for stocks. It’s not a matter of “if” your investments will lose value, it’s a matter of “when”. However, if you have rental income or dividends, then you should always increase your wealth. It is hard to predict where and when the next crisis is coming from, but it is always around the corner.
How to purchase the right dividend stocks
- Always buy quality: There is no substitute for quality. You will either pay for it now or pay for it later, either way, you will pay for it. Seek companies that have a high probability of being around for generations, still be very relevant and still be a leader in their respective industries. They might be a little expensive but it is definitely worth it on the long haul.
- Be patient: It is extremely tempting to want to purchase a high flying stock of company when there is a lot of buzz in the news about the company. Other than buying quality companies, the next most important thing about investing is the price you paid for it. It determines a lot about your profitability. It is more prudent to be patient and purchase stocks at a bargain. “Be fearful when others are greedy, and greedy when others are fearful” -Warren Buffett.
- Seek dividends aristocrats: Dividend Aristocrats are companies that are members of the S&P 500 and that have paid and increased their dividends every year for the past 25 years. This includes even during recessions and depressions. With this track record, there is a higher probability that they will continue paying and raising dividends in the future.
Grow your business, Grow your income, and Invest in passive income vehicles.
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