Be financially free with dividends! 💸 | #1
I will talk about my strategies to retire before 30 with dividends
Hey folks!!! 👋
So here we go with the first post in substack. First of all, thank you 🙏 and congratulations 🎉 on subscribing to me. My hope is you will enjoy reading this as much as I love writing. I hope you take away at least one thing from it.
Overview
💸 Dividend growth investing and retiring
🌼 My current strategy
💸 Dividend growth investing and retiring
So, dividend growth investing (DGI) is the infinite money glitch of real life. In DGI, you invest in a company, that gives dividends, you use the dividends to buy more of the stocks that give you dividends to make more money in dividends 🤯.
Before being a dividend growth investor, I got the concept of it from my American father who used his rental property to fund his retirement. He bought started with a house in the city of Wayne, NE. He collected the rents, used 50% to pay off the mortgage, 50% saved. In a few years, he saved enough to put down payment for another house. By the age of 55, he had 8 rental properties and yielded enough money for them to retire without having to worry about their finances. So, I decided to do the same using stocks, and luckily I was able to retire before 30.
By retirement I have not thrown my towel and am enjoying doing nothing but traveling, I would love to do that in the future. By retirement, I mean I don’t have to do the job that I don’t feel like or am not passionate about, I don’t have to worry about my finances. So, to retire with your dividends you will need the following:
💳 Know your expense: When you retire you will need some degree of certainty on what is the amount that you’ll need for your expenses. So, keep a habit of tracking your expenses, so you can project the amount needed for retiring. There are millions of expense-free trackers in app stores. If you want to use the spreadsheet that I created, you can find it here.
🏦 Know the amount you need: Once you know your expense, you can have at least 3 months of expense equivalent in savings account for a safety cushion. Now, you’ll need to know the amount you’ll need for retirement. For dividend investors, it is monthly expense times 12, divided by dividend yield. For example, if your monthly expense is $400, and you have invested in $VOO which yields 1.42%, the amount you’ll need for retirement is $400*12/1.42% i.e. $338,028.17. If you want to calculate the amount that you need to reach that amount target, you can use the calculator that I have built here. You enter the monthly amount that you are willing to save, the portfolio value, and dividend yield and you’ll get the approx amount of years for you to reach financial freedom.
There are risks associated with dividend growth investing, and I will be discussing in detail about them in my future post.
🌼 My current strategy
I am trying to take a dividend growth strategy to the extreme and am trying to return beta return (return similar to a market benchmark, S&P 500 in the US) with a higher dividend yield and higher dividend CAGR (the rate of growth in dividends per share). For this, I am dividing my portfolio into 3 parts.
🤑 Income
Because I want my portfolio to generate dividends more than what S&P 500 stocks like $SPY or $VOO do, I am investing around 40% of my portfolio in income-generating ETFs like $QYLD, and $NUSI, $JEPI, and $BTS. I will write a deep dive on them in the future.
The income ETFs generate around 55% of my total yearly income at an average of 7.55% which is astronomical in comparison to 1.42% of $VOO. Unlike $VOO though, these stocks will most likely not give me any capital gains and have higher fees.
💸 Cashflow
Now that income is sorted, I am looking for monthly cash flow. All the above-mentioned income ETFs are monthly dividend givers. I also wanted to add more so, I won’t have a significant difference in my monthly income. For example, if I generate $3,000 in one month and for the next two months, if I generate $500 each, it might not be as good for me. What I was looking for was to consistently generate a similar amount of cash flow.
For that, I have invested in monthly dividend givers like $STAG, $O, and $AGNC which are around 15% of my total portfolio.
⬆️ Growth
While cash flow is very important, it’s equally important to grow as well. If I keep on generating around $1,500 per month for 10 years, and if I use all the $1,500. In the next 10 years, $1,500 won’t be enough for me as due to inflation, I will not be able to buy as many things with that $1,500. So, my strategy is to invest in companies like $AAPL, $COST, $VICI, and $HD that grows their dividends in double-digits per year. They will provide me with fewer dividends, but will provide me with higher capital gains and will keep on increasing their dividends. For growth, I have also invested in Unity ($U). It is 5% of my total portfolio.
As a result of the above-mentioned strategy, I have a dividend yield of 5.52%, a dividend CAGR of 11.94%, and a beta of 1.009658887. Meaning, that theoretically, I have secured an 11.94% increase in my dividends per year, and around 7% capital gains each year. If everything goes as planned it must be more than enough for me to retire to eternity.
Takeaways from this post:
Know your numbers
If you don’t track, you can’t improve
If you liked this post or want to see something specific do let me know.
Awesome man, glad to see you on substack! Congratulations!