The idea of pulling in a steady flow of cash without working all the time, also known as passive income, is as enticing as ever. One way to achieve this goal is through dividends.
Financial guru Graham Stephan knows this well. On his YouTube channel, he has noted how he earns a five-figure income per month from dividends alone, showing how powerful dividend investing can be. Let’s take a closer look.
Consider This: A Guide to Turning $200,000 Into Monthly Income
For You: Start Growing Your Net Worth With Smarter Tracking
What Is Dividend Investing?
Dividend investing means owning shares of companies that give shareholders some of their profits regularly. According to Stephan, dividends allow you to earn passive income easily — and the best part is that you don’t need a huge investment to get started.
Stephan explained that dividends are great because they are stable. Dividend payments usually stay relatively the same even when the market changes a lot. The result? A pretty steady income.
Pros of Dividends
First, dividend payments tend to be stable as mentioned. You get cash flow even when the economy remains in flux. Stephan highlighted that data shows some dividends went up during some past recessions, which means that dividend payments have proven to be resilient.
Advertisement
You can use the money earned from dividends to reinvest in more shares of the same stock or other dividend-paying assets. The result? You’ll earn more money on top of the money you were paid in dividends, resulting in significant compounding over time.
Cons of Dividends
Even though dividends seem good, don’t just jump in. Dividends aren’t a sure thing. While some dividends increased during past recessions, they can also go down when the economy struggles. To add, you might find that the price of a dividend-paying stock you own could be dropping significantly.
But because you continue to receive dividends, you justify keeping the asset. In this scenario, you could be losing more money than you’re earning in dividend payments. Dividends also tend to be taxed at a higher rate then your normal income.
How To Invest in Dividend-Paying Assets
For people wanting to earn money by investing, Stephan details a plan to replace normal job income with dividend investing. By putting money into different companies that pay out dividends, investors can get a steady stream of income. Stephan explained that it’s important to balance putting money into both dividend-paying stocks and ETFs to reach income goals.
While dividends seem like easy money, picking good investments is very important. Stephan stressed matching investment plans with personal money situations. Overall, dividends are a way to financial freedom, letting investors swap job income with smart investment choices.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: