5 Simple Steps to Building Wealth
On my book website I tell people not to buy my book, just read 5 specific posts. Of course, this is a little tongue-in-cheek. My book tells a great story, and fills in gaps and makes investing more human.
That said, there's some truth to the fact that you don't need to know much but 5 specific things:
- What are dividends?
- What does it mean to reinvest dividends?
- What are the dividend aristocrats?
- How do you get started?
- What do you measure?
I believe my book does a good job at #4 – how to get started – and a unique job at #5 – what to measure.
So, I'm going to try something new here, and create a post only for (free) members. I hope you find it compelling enough to share your email – and email I only use to send posts like these on an infrequent basis.
What are dividends?
Dividends are payments that some companies make to shareholders.
Ostensibly, these are profit payments... but sometimes companies pay dividends even when they don't have profits. That's an accounting thing that doesn't really matter here. That's why I'm just calling them payments to shareholders.
Owning shares of a company make you an owner of that company, and dividends are one way the company gives back "profits" to shareholders.
Reinvesting dividends
To reinvest a dividend means that rather than receiving a dividend in cash, you elect to receive an equivalent value of additional company stock.
Dividend reinvesting is a strategy to compound dividend payouts by accumulating additional stock over time. By accumulating additional stock, future dividends compound - which is a fancy way of saying your dividends start paying dividends of their own. Compounding dividends is a very powerful way to grow your dividend paycheck over time.
Companies that increase dividend yearly
There is a set of, about 70, companies called the dividend aristocrats. These are large companies with a 25+ year history of increasing their dividends. When a company does something for that long, they have a process for doing so... which means you can count on these yearly increases as much as you can count on anything when investing. Meaning, sometimes company fortunes turn, and dividends are cut... but it's less likely to happen with a dividend aristocrat.
In fact, there's a subclass of dividend aristocrats that have raised their dividends for 50 years in a row!
The best place to learn about the dividend aristocrats is Sure Dividend.