These Top 5 Tips will help you for Dividend Investing:
Get a good personal financial base
Do your research
Be patient
Don't be distracted
Be realistic
I have only recently started my dividend investing journey but have been researching and flirting with the idea for the past few months. I am pretty much 100% invested in index trackers and love the 'set it and forget it' strategy. But I was keen to add some diversity to my equity folder, to add more consistent returns to my investment, and to learn a new side of the investment world.
Dividend's are payments companies make to their investors. The more you have invested in the company the higher the level of payout. A company will do this when they have typically had a successful year of production and as a way to avoid paying tax on their profits.
Some companies pay out their dividends annually whilst others do it quarterly. Some companies consistently pay out year on year, whilst others are a lot less predictable. We are going to go through my 5 top tips for dividend investing, which will be helpful if you a newbie and need some guidance, and also as a checklist for those more experienced. Remember to always do your own research, this is not financial advice and you are responsible for your own choices.
1/ Get a good personal financial base
For any investing you need to be in a secure position with your finances. The debate of paying off debt whilst investing is contentious and there is no one size fits all. However, it's probably fair to suggest not to start investing in any market which will only predict returns of 3-9% when you have credit card debt at 19%+ interest rate. That makes zero sense.
If you have debt, and no emergency fund, what is the point in owning £200 shares in Coca-Cola? Who cares you get a dividend of £4 twice a year when your interest repayment is £100's per month!?
If you have zero debt, but no emergency fund, again this is silly. If you have an unexpected car payment, hospital bill or get the sack at work. Who cares about your £200 shares when you are now back into debt.
Get the basics right and then start looking at investments, be it dividends or index funds.
2/ Do your research
You are responsible for your own outcome and your own money. No-one else. Don't plead ignorance when things don't go well. If you have enough capital it doesn't matter then this is awesome. But likely this isn't you if you are reading a blog on dividend tips!
I didn't take the plunge until I was happy with what I was doing. I'd read enough books, listen to some podcasts and read some online articles. I mulled it over in my head for a number of weeks and then finally went into things. I didn't do it on a whim with no confidence in the plan. Your plan will be different to mine, which will be different to your mates down the pub. Do your own research - you are an adult!
3/ Be patient
If you want a 'Get Rich Quick' scheme this isn't for you. Good wealth, similar to index funds, is built over a long period. Linking the top point of doing research, you may make some mistakes on the way. Best to do it early on with small amounts of money and low expectations, rather than later on when the risks are potentially greater.
This leads perfectly to the next point.
4/ Don't be distracted
Damien who is one of my favourite YouTubers has recently released a video discussing this. Comparing your portfolio to the 0.01% you see on social media who are flexing their financial muscles will not help you. Compare yourself to what YOU were doing 1 year ago. Are you in a better position than past you? If so - keep going!
Distracting your outcome to someone who has invested £100,000's more than you and who has been investing for decades is dumb, will leave you deflated and at greater risk of doing something stupid. Like a failed 'Get Rich Quick' scheme!
5/ Be realistic
Do the math. You can have a reasonable idea what a company may pay out in their dividend period by doing some research. If over the last 5 years the dividend yield percentage was 5.4%. It's pretty reasonable to expect 5%, maybe just predict 4%. They aren't going to pay out 10 or 20%. So don't calculate this into your expected returns and be disappointed when it obviously doesn't come through. You can normally find dividend returns on the platform you use or through certain websites such as this one which is tracking Coca- Cola.
So those are my tips for you to think about if you are interested in dividend investing. If you would like to start you your dividend journey you may be interested in a free share through a Trading 212 promotion. Follow this link and when you have deposited £1 you will get given a free share between £10 and £100. I was lucky enough to get a £70 share!
This was the video I mentioned earlier as well - well worth a watch!
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