How much stocks do you need to buy to make 1K a month
When you think of the stock market, the first thing that comes into mind is this complicated
world of the stock market.
With so many confusing charts, its easy to get lost.
But what everyone knows for sure is that you can buy stocks and sell them whenever their
rise but there is another way that professional investors use to make a fortune.
In 2018, warren Buffett received 3.8 billion dollars in cash from his 5 major investments.
Don't get me wrong, he didn't sell his shares to earn that much.
bUt instead, these 5 companies earned a ton of money during the year.
Since warren buffet is an investor in these companies, they had to share their profits
with Buffett.
That's called dividends.
Simply put it, there are two types of companies in the stock market, companies that have already
matured and have profitable and sustainable business models so whenever they make a profit,
they don't know what to do with that money, therefore they end up sending it to their
shareholders, on the other side you have companies who are still trying to turn a profit like
Tesla.
They might report a profit, but the company needs that money to grow further, so here
is a question we will try to answer in this video, how many stocks you have to buy or
how much you have to invest in the stock market so that you receive a thousand dollars from
your investments every month without selling your stocks?
But before we do that, we have to understand a few key concepts.
How dividends work?
What are the best dividend stocks?
And how to avoid the dividend trap that might lead you to lose your entire investment?
Dividends - The Real Passive Income Since the dot com bubble, the nature of investing
has changed.
Before that, investors' main concern was to invest in companies that would turn a profit
and share these profits with them since, as shareholders, they are entitled to the company's
profits.
But entrepreneurs such as Jeff Bezos stepped in and completely changed the game.
The goal was no longer to maximize profits but rather to grow the company even if that
means not paying a dime in dividends to shareholders.
A company that only burns cash and isn't profitable looks like a bad business, but the strategy
is to keep operating at a loss until you dominate the entire industry and then generate profit
since you will be the only player in the market.
And that's what Amazon did for the last 25 years.
Despite its 1.6 trillion dollar valuation, it never paid a dime in dividends to its shareholders.
In fact, it avoided taxes for 2 decades since it was reporting a loss.
In 2019, it turned 11.5 billion dollars in net income while its competitor Walmart generated
15.2 billion dollars and paid 2.16 dollars in dividends per share, but at the end of
the day, Walmart was valued at 1/3 of an amazon.
Amazon might seem like a more promising stock in the future, but if you want passive income,
Walmart looks like a better option.
And the stock market is filled with such examples.
There are just a handful of tech companies that pay dividends.
The rest, especially the big ones, would rather re-invest what they earn instead of paying
you.
2.
High Dividends -The Perfect Scam To Attract Investors
While stocks that pay high dividends are extremely seductive, they aren't always the best choice.
In fact, dividends sometimes are used to mislead investors and rip them off.
The company might be on the verge of bankruptcy, or it might be barely surviving.
Its stock is falling year after year, so one way to make it's stock attractive to investors
is by offering high dividends.
Take Universal corporation or UVV.
If you take a look at its dividend rate, you will see a ratio of 7.16 percent.
That is unimaginable high.
You probably won't find anything like that in the entire market.
Even the world's largest company, apple, pays around 2 percent in dividends.
But I personally would not buy this stock and wouldn't advise anyone else to do that.
The stock price was around 50 dollars 5 years ago, and you might imagine that it might have
grown slightly since then at least, but it didn't, the price fell to 43 dollars, and
the company does seem to have a future, so it pays high dividends to keep its stock attractive
to investors because who knows where else the stock price might be a few years from
now.
Compare that to apple that pays only 2 percent in dividends but the stock price rose by 337
percent in the same period.
Cashflow is great, but losing your principle is bad.
And the stock market is filled with such stocks.
So, don't choose to buy a stock solely because it has the highest dividend yield.
3.
Best Dividend Stocks Ever
You might be wondering by now that are there any good companies that are both growing and
paying high enough dividends?
The answer is Yeah, there are!
Take Coca Cola, for example, the company exists since 1886, and it began paying dividend before
you probably were born, it has quite a good dividend rate of 3.2 percent.
Of course, the stock price hasn't been growing as some of the tech companies because many
believe that there aren't much left for coca-cola to grow, but it is definitely not going to
fall the next day.
The home depot is another example.
They have been paying a dividend yield of 2.5 percent consistently.
The stock price doubled in the last 5 years.
Johnson & Johnson has been around since 1886 and is regarded as the king of dividends.
It's a big name in the pharmaceutical industry.
It also plays a key role in developing the vaccine for the current pandemic.
Its stock price might just boom once the vaccine is ready.
The companies that don't usually pay dividends are tech companies since the idea behind it
is that, the company would be far better if it re-invests that money back and grows faster.
Companies such as Google, Facebook, and Tesla don't pay a dime in dividends, which is why
investors love Apple.
It's a tech company that both excels in hardware and software.
It has a built-in ecosystem that provides it with consistent cash flow.
Its stock price rises as much as other tech companies, but it also pays a dividend yield
of around 2 percent.
So let's try to answer the question.
4.
How Much do you need to invest to make a thousand dollars a month?
Well, since dividend yields are different from one stock to another and we don't want
to invest in companies that don't seem to do great in the long run.
We will take into account companies that aren't only paying great dividends but also would
grow over time, such as apple, coca-cola, Johnson & Johnson, the home depot, and so
on.
It difficult to find an exact dividend yield since stock prices change every year, so does
dividend yields.
It also depends on the portfolio you build, but let's assume that you are going to get
2.5 percent annually.
To receive a thousand dollar of passive income, you need to invest around 500 thousand dollars,
that will provide with 12500 dollars a year, or slightly higher than 1 thousand dollars
a month.
And suppose you want to make enough from dividends to retire complete.
In that case, you need to invest at least 2 million dollars to make 50K dollars annually.
I guess you aren't impressed because investing half a million dollars in real estate, for
example, would provide you a much higher passive income than 12500.
And that's why investors are more concerned about the stock price than dividends.
Amazon might not have paid a dime in dividends, but its stock rose by 522 percent in the last
5 years.
Amazon investors have earned much more than any dividend investors could possibly imagine.
Does that mean investing in dividend stocks is nonsense!
Not really!
If you have a big enough portfolio that's invested in wide variety of stocks, making
dividend stocks part of your portfolio is a good decision.
But you also have to consider that these stocks are growing as well so if you use these dividends
to buy more stocks of the company, you will end up with a pretty good investment.
The home depot's stock price increased by 26 percent last year and it paid around 2.5
percent in dividends, which makes it a pretty appealing investment.
On the other side, if you are just starting out with a small amount such as a few thousand
dollars, you can't afford to buy a property to rent it out, so starting with dividend
stocks might be an option to consider for some.