Your Little Book of Dividend Investing: How To Get Rich Slowly

By Johanna Wychcote

Most books on the stock market focus on making capital gains. This book, on the other hand, aims to help you build a portfolio of stocks that will pay you an income.

Buying dividend-paying stocks can create passive income - just wait for it to hit your bank account. All the work is done up front - researching and choosing the best stocks to buy. And it's not that difficult - all the basic data is easy to find, and interpreting it is not as difficult as highly paid stock analysts would like you to believe!

Get your income portfolio started today, and look forwards to a wealthy future.

• Language: English
• Publisher: Practical Press
• Release date: Apr 26, 2023
• ISBN: 9798223541752

Johanna Wychcote

Johanna spent twenty years working in finance before quitting to go it along before she burned out. She's built her own investment portfolio and a small real estate business, and now writes ebooks on investment topics as well as spending her spare time painting watercolour landscapes.

Book preview

Introduction: Why it's not safe to leave your money in the bank

People often distrust the stock market. They prefer to invest in their own home, or keep money in the bank.

Those are deeply problematic investments. For a start, your home isn't easy to sell, and you presumably need somewhere to live. At least, if you believe in real estate, buy a rental property. And leaving money in the bank currently makes you almost zero in interest. So you can keep your money for thirty years, and at the end of thirty years, it will hardly have grown at all.

Worse, prices will have gone up, so you'll be paying for expensive Tomorrow Things with cheap Yesterday Dollars. In other words, inflation will have attacked the value of your bank account. Your money will be worth less than it is now.

And that's why it's not safe to leave your money in the bank.

On the other hand the stock market grows fairly steadily, in the long term. True, there will be short-term ups and downs, but over the years the stock market has generally returned considerably more than cash or bonds. Stocks have usually returned above 8 percent a year, compared with much lower returns from bonds and cash.

So if, let's say, you invested your money in the S&P 500 stock market index, you ought to have doubled your money in ten years, and in thirty years you'd have ten times what you invested. You should be handily ahead, even if inflation does its worst.

But there are different ways of investing in the stock market. There are lots of gung-ho young Robinhood traders who aim to make money quickly by trading 'hot' stocks like Tesla or Gamestop. That's high risk; it's a bit like playing musical chairs - when the music stops, whoever's left holding the shares loses! There are growth investors who try to buy high quality companies at reasonable prices. Some investors research smaller companies and mid-caps to try to find the best prospects for growth, but this is a labor-intensive way of investing and you'll need to understand how to read companies' financial reports as well as research the business.

Dividend investing, on the other hand, has a different focus. You look at what the company pays you, the shareholder, in actual cash; that is, the annual dividend. You expect the company to keep paying dividends, and hiking the dividend from time to time as earnings increase. Some companies have increased the dividend every year for more than a decade; if you're invested in these dividend stars, your portfolio will be giving you income, and probably your stocks will also be valued at more than you paid for them.

I like the idea of getting, currently, between 2% and 6% dividend yield on my money. That depends on the kind of company, the sector it's in, and how highly rated it is by investors.

Let's talk through the math. If I invest $100 in a dividend stock, I'll get between $2 and $6 this year in cash. I'll also get that return, perhaps with an increase, while I hold the shares, unless things go badly wrong.

That's much better than putting money in the bank. And over the long term, if I reinvest my dividends, I'll get compound growth; that is, I'll get that 2% or 6% paid not just on my original investment, but on the dividends that I invested back in the stock. That can really add a kicker to both your income and your capital.

Why the stock market is safer than it looks

The stock market doesn't look very safe at all. If you read history, you'll know about the Great Crash of 1929, and depending on your age, you may remember the late 1980s crash, the 2001 technology collapse, or the 2008 Credit Crunch crash.

Source: Hartford Funds

The worst crashes took a long time to recover; 1929 took nearly 30 years; 1972 oil price shock crash took 14 years, tech crash took 7 years, and the credit crunch crash six years. However, most market crashes recover more quickly, as do corrections (which feel like crashes - the actual definition is a fall of less than 20%) which often recover to previous levels in just a few months.

Everyone remembers the crashes. But what people don't tend to remember is the long years of growth in between the crashes.

In fact, you can think of a crash as like winding up a spring. Markets