Regular readers will know that I’m a big fan of dividend investing. Unlike other complicated investment strategies that involve buying and selling shares at the right time to lock in a profit, dividend investing is a really simple way of building up your wealth because you receive regular cash payments from your stocks for doing absolutely nothing. It’s an extremely easy way to generate a passive income stream and anyone can do it.
Money for nothing Personally, I’ve been focused on building up a portfolio of FTSE 100 dividend stocks for around five years now. And while at times it has seemed like slow progress, I am now starting to see some excellent results. For example, when I logged into my portfolio last week, I found that I had received 12 dividend cheques since the beginning of May. I’ve provided a breakdown in the table below:
Dividend payments I have received since 1 May 2019
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As you can see, there’s nothing overly complicated going on here. All I did to pocket 12 cheques in six weeks was invest in a number of well-known FTSE 100 stocks.
Building the income stream Now, at this stage, my dividend payments are still relatively small. The total income provided from my portfolio of FTSE 100 dividend stocks is not enough to live off. However, I do still have at least 20 years until I plan to retire, meaning I have plenty of time to keep building up my portfolio and the dividend income stream.
Right now, every dividend cheque I receive gets reinvested, which, ultimately, gets me more dividends in the future (this is known as ‘compounding’ and it’s one of the keys to building wealth). I’m convinced that by the time I hit 60 or so, my income from dividends will have grown to a level where it’s more than enough to live off.
Additionally, given that all my dividend stocks are held within a Stocks & Shares ISA, all that income will be tax-free too.
Stress-free investing If you’re looking for a stress-free way of building up your wealth, I’d urge you to consider the benefits of dividend investing. With this style of investing, you’re not going to get rich overnight. However, build up a portfolio of high-quality dividend stocks and you’re likely to receive multiple cash payments every month for doing absolutely nothing. Who wouldn’t want that?
Edward Sheldon owns shares in Aviva, BAE Systems, ITV, Unilever, Mondi, St. James's Place, Ds Smith, Reckitt Benckiser, Schroders (non-voting), Prudential, Lloyds Banking Group (LON:LLOY), and Legal & General Group. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended DS Smith, ITV, Lloyds Banking Group, Prudential, and Schroders (Non-Voting). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019