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Money Tip of the Week: Dividend Investing
For this week’s money tip, I’m covering dividend investing, as it’s a great way to create passive income.
There are two key approaches to dividend investing.
Approach 1: Choose stocks with the highest dividend yield
Approach 2: Choose companies you believe will stick around for the long term.
I’m a huge advocate for Approach 2 above. Three of my top dividend stocks include Apple (AAPL), Microsoft (MSFT), and Intuit (INTU).
Yes, their dividend yields are tiny.
Yes, it will take much more money to get a larger dividend return.
But, I trust they’re positioned for the long term and continue growing in value.
Let’s take a look at an extreme example of the power of dividend investing:
As I’m writing this, Coca-Cola (KO)’s stock is valued at ~$71 per share, with a dividend yield of 2.72%. This means that for every $100 of shares you own, you’ll receive $2.72 annually.
I don’t personally own Coca-Cola stock (I’m not a fan of the soda industry), but do you know who is?
Warren Buffett.
He loves both the drink and the stock - it’s reported he owns 400 million shares. With a 2.72% dividend yield, you can estimate $784 million in annual earnings on the holding.
Dividend investing can be a game changer for your finances. It can provide a steady income stream and typically carries a lower volatility.
If you decide to reinvest the dividends versus taking them as cash, you can tap into compound returns, which will work wonders for your portfolio in the long term.
Warren Buffett doesn’t simply focus on a dividend yield, he looks at the whole picture, both the company and the industry.
Highest Return Dividend Stocks
For those that would prefer approach 1 above, here’s a list of the top dividend stocks by dividend yield from Investopedia.
I haven’t personally invested in the below but I have them on my research list to dig into their business fundamentals a bit more before investing.
Company | Dividend Yield (%) |
|---|---|
BW LPG Limited (BWLP) | 21.07 |
Diversified Energy Company (DEC) | 18.20 |
Oxford Lane Capital Corp. (OXLC) | 17.00 |
Eagle Point Credit Company Inc. (ECC) | 16.99 |
TORM plc (TRMD) | 15.20 |
Ecopetrol S.A. (EC) | 15.02 |
XAI Octagon Floating Rate & Alternative Income Trust (XFLT) | 14.34 |
Ready Capital Corporation (RC) | 13.36 |
Cool Company Ltd. (CLCO) | 13.05 |
Hafnia Limited (HAFN) | 12.91 |
I wrote up a lengthy article about the pros and cons of dividend investing, along with how to get started. Click below if you’re interested in learning more.
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