Finny logo
Dibs:
Dibs:
0

❓ Dividend investing out of favor

April 20, 2021 Sign up
TOGETHER WITH Finny

Good Tuesday to you all! If you invested $1K in Bitcoin 5 years ago, do you know how much it would be worth today? See the answer in the Trending section below. 

Here are the money topics we cover today:

  • Is dividend investing still worth it? 
  • What the heck is a digital dollar? 
  • Credit card perks you should know about

INVESTING

Is dividend investing still worth it?

Dividend investing is like that “good job” your parents always wanted you to get. Sure it’s safe, has decent benefits, and it pays alright, but at what cost? How long do you have to work there to reap the benefits, and is it even worth it if you hate it? 

Dividend investing is similar in the sense that yes, it can potentially provide some nice, definitively passive income, but it also presents itself with its own intrinsic pitfalls that accompany its benefits.

Let’s take a 1-minute survey course on dividends

A dividend is something a company pays out to its shareholders at predetermined intervals of time. This usually comes at the frequency of four times per year, quarterly, or in some cases semi-annually or annually. This can be in the form of cash, or it could come by way of more shares in the company too. 

Companies pay a set dollar amount per share basis. If you own one share of AT&T, they will pay you $0.52 per quarter, per share owned. This makes their dividend yield about 6.8%, which is very high. Yield is calculated by dividing the annualized dividend payout by the current share price. (It’s actually about 7.17% as of April 13th, based on their current share price.)

Dividends, especially good ones, typically come from companies that have reached maturity and find themselves in established industries with predictable profits. Think oil & gas, banking, healthcare, utilities, etc. They’re beyond the growth phase where they reinvest heavily and take on expansion debt, and they reward investors for their equity.

So, what's a good dividend? In general terms, anything over 2% is considered to be a good dividend payout rate, but that’s also the broad average of the S&P 500, and as seen with AT&T, you can find much better than that if you’re a diehard dividends fan. IBM has a 5.3% yield, Realty Income, a REIT, offers 4.6%, and Walgreens is at 4.5% now, partially due to its recent price drop.

Considerations when dividend investing

Let’s be clear, dividend investing is not a strategy to produce investment income fast, or at all, unless you have a lot of cash, a lot of patience, or both. You would need to own 1,000 shares of that high yield AT&T stock to produce $2,000 a year in dividend income. That’s a $29,000 investment, so it would take you 15 years to make your money back at present value. 

Dividend investing is not for the faint of heart, the light of accounts or the impatient. Despite this though, that doesn’t mean that over time by investing money you don’t need, you couldn’t build up a nice supplementary income. If you were able to spread a few hundred thousand dollars of retirement funds across multiple well-paying dividend stocks, this could become a viable option.

But don't forget that the stock price is still relevant. A dividend stock is something you want to be able to ease into overtime, and eventually, sink a lot of funds into something that can make your dividend payouts amount to something relevant. You don’t want to have to concern yourself with market fluctuations and a volatile stock price. 

Picking a dividend stock that’s presently overvalued or just doesn’t forecast well for the long-term future can be a risky play. Sure you may be getting a great dividend payout, but if your principal investment value is melting faster than the ice caps because the market is becoming speculative of the business or the industry it’s in, then you’ve just negated the point of dividend investing.

This is why it’s important to pick well-established businesses with a long-term outlook. A dividend stock that can not only create income but preserve the value of or even potentially grow the principal investment amount is the ultimate goal here.

So is it worth it?

Whether or not dividend investing is worth it depends on your financial goals, risk tolerance, and more. Got a lot of cash on the sidelines and want some truly passive income? This is for you. Need some money quickly? Looking for an undervalued growth stock? Steer clear, there are other investment strategies for you.

💡 If you are looking for high-dividend investments, but you don't want to pick individual stocks, take a look at high-yield ETFs. Just keep in mind that high yield ≠ high return. 

📊 Wondering what are the key dividend strategies and how their returns stack up?  Take a look at Finnyvest's dividend strategy scanner.  It will teach you a thing or two.

CURRENCY

What the heck is a digital dollar?

Money is created all the time, and more money is created than is printed. It’s no longer just made when the Federal Reserve decides to make the money printer go brrrr. You can thank fractional reserve lending for that, and it’s been around for a long time (like, the 15th-century type of long time). Money is created, digitally, when banks make new loans based on a fraction of what they have in reserves, so it’s not necessarily anything new.

Now that we’re all up to date on how money works...

Aren’t our dollars basically already digital then? When’s the last time most people paid for something with cold hard cash? Well yes, and no.

Our currency has digital representations of itself in our online banking system, but the USD has no official CBDC (Central Bank Digital Currency) that centralizes the creation of money digitally with the Fed. Theoretically, this is a natural evolution of technology, and we’ve been witnessing it for the last several decades with the advancement of online banking and credit/debit cards.

It’s still controversial

Making everything digital, fast, and convenient sounds great on the surface, but beneath that, it presents a whole host of other controversies and disagreements. A fully digital dollar would likely mean that every transaction is logged and traceable to its source, which could pose a privacy issue. 

The claim could be made that it doesn’t matter as long as you’re not doing anything illegal in the eyes of the IRS, but at the same time, for most skeptics, it’s just the principle of the matter and the fact that everything is being inadvertently tracked.

The present reality

As for right now though, it’s mostly proposed that digital currencies could continue to coexist alongside physical dollars for the foreseeable future, so we’re not being forced into using it. It’s also worth noting that for the majority of citizens, this really wouldn’t be any different from the way they presently conduct their transactions. Most of us are used to all of our payments being logged, but it’s still something to be wary of.

SPONSORED BY THE GREAT COURSES PLUS

Never stop learning

Learn something new today with The Great Courses Plus

  • Tap into their expansive selection of over 13,000 video streaming lectures from some of the world’s greatest minds.
  • Quench your intellectual thirst from the Art of Investing to the Theory of Everything
  • Learn anytime, anywhere.  With the ability to stream lectures on your laptop, tablet, smartphone and TV-connected device.

Start binge-learning with The Great Courses Plus!  

Now, you can get a Free Trial and 20% off an annual subscription Learn something new today.

CREDIT CARDS

Credit card perks you should know about

Credit card companies exist to make money like any other for-profit business. Luckily though, in the case of credit cards, you can actually make them pay you if you play your cards accordingly. 

There are more credit card options available to consumers and first-time cardholders now than ever before. The financial world is recognizing the importance of including everyone instead of making debt an exclusive club, and companies are stepping up their incentives game to compete.

Whether you’re a seasoned credit card finesser or a beginner looking to build your credit, here are some important credit card perks you should know about.

  • Flexible Rewards. Many credit cards changed their rewards structure in the last year to remain relevant and useful. For example, some travel cards allowed point redemptions for statement credit against take-out, groceries, and home improvement purchases. Look for credit card incentives that best reward your spending in the current environment and redemption changes. Also, keep an eye on any new redemption options and changes.
  • Free Cell Phone Protections. As unrelated as it may sound, some credit cards will offer what’s essentially a cell phone insurance plan if you pay your monthly phone bill with that card. If you already have your own coverage, most plans will reimburse the deductible portion of your bill. The Chase Freedom Flex and The Platinum Card by American Express are two examples here.
  • Rental Car Coverage. Rental car insurance is not cheap, especially when purchased from the rental agency itself. This inconvenient expense has created a secondary market where some credit cards will offer users rental car coverage. Some vehicle insurance policies already have this included, but this second level coverage from the credit card can be invaluable in a rare situation where you’ve become liable for damage or theft of a rental car and also happen to have a high deductible.

✨ TRENDING ON FINNY AND BEYOND

  • $148,194 is what your $1K Bitcoin investment from 5 years ago would be worth today. (Benzinga)
  • EVENT: Join Tiller Money & Finny for a Financial Literacy Q&A this Thursday (April 22nd) at 9:30 am PDT (Register to save your spot!)
  • An app that allows you to get 4% cashback instantly (Slide)*
  • When you learn, you earn on Finny! Redeem your gold coins or Dibs earned for gift cards, cashbacks, entries to giveaways & more (Finny's Reward Shop)
  • Finny lesson of the day. The markets have been on the up & up, and you may be wondering how to rebalance your portfolio? Take this bite-sized quiz to refresh on the topic:

Finny is a personal finance education start-up offering free, game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools (aka Finnyvest).  Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own boss!  It's sent twice a week (Tues/Thurs). The editorial team: Austin Payne and Chihee Kim.

*Sponsors or advertisers offer unique consumer services.  We're thankful for their sponsorship to enable Finny to offer free financial education. Here's our advertiser disclosure

If you have any feedback for us or interested in sponsoring, please send us an email to feedback@askfinny.com.

Copyright © Finny 2021. All rights reserved.
736 Paloma Ave, Burlingame CA 94010
Follow Us