In 2022, I decided I wanted to be work optional in 2027 by investing and growing my investment portfolio to €800K. My portfolio will then be able to fund my annual cost of approximately €32K based on the 4% rule. As I learnt more on investing, I quickly realised there are other ways to get to my work optional number and one of it was Dividend investing.
Dividend investing is buying stocks or dividend ETFs that pay regular dividends, providing a steady income stream. This looked like an opportunity to build up cashflow that can fund my life cost while maintaining the stock ownership. I started small by buying some dividend aristocrats and then extended to REITs. To manage risk, I also added a dividend ETF to my portfolio. These investments delivered €8,160 dividend income in 2023 vs. €987 in 2022. All dividends were reinvested.
I am not an expert on dividend investing and I do it mainly for cashflow. My key learnings from my one year of experience are:
- Research the companies you want to invest in – it’s easy to rely on easily available information like dividend kings list, dividend aristocrats list or dogs of the dow but these are not sufficient. Any company can drop off these lists from one day to the other. Two of the companies I invested in (VFC, WBA) were dividend aristocrats who suddenly reduced dividend and dropped off the lists
- Don’t just chase the dividend yield – high dividend yields are very attractive but that’s not the only criteria that matters. It’s key to understand the fundamentals of the company, the industry it plays in and what the quarterly financials is saying. Is the dividend payout in line with what the numbers are saying e.g. If a company is struggling to generate a positive cashflow and is still paying out dividend, that’s a disaster in waiting
- Be wary of hype info – as soon as I decided on dividend investing, I started noticing a lot of recommendations on all platforms on top dividend paying stock. LUMN was hyped heavy until it suddenly stopped paying dividends and the stock lost over 80% of value
There are pros and cons to dividend investing but for me the pros outweighed the cons as it met my need for a reliable cashflow source. I am no longer adding to my dividend stock and only maintain current holding. All the dividends I get are reinvested into the dividend ETF and I now do a quarterly evaluation to determine if I sell down a particular stock or exit it.