Beat Buffet with Dividends

We are told by advisors, cable commentators, brokers and others that the road to wealth is buying the right stock at the right time. Then, hold on for a long-term to achieve a positive outcome. In the meantime, you must worry through market downturns, missed earning and other stress from the stock. Maybe a few sleepless nights along the way. For dividend investors, they look to the list of fastest growing dividend stocks to project what the dividend yield will be in 10, 20 or 30 years. I agree that time in market impacts outcomes. Is this the best way to create income for financial independence?

We all hear the story of Warren Buffet making over $6 billion per year. By my math, this is over $16 million per day. Wow! You can’t dismiss this success. However, how many years of dividend growth did this take to happen? Buffet is 92 years old so he has taken a lifetime to reach these levels. What if you want to reach financial freedom in 5 to 10 years? Will the Buffet strategy get you there in this time frame? The answer we know is no unless you have a pot of gold to start your investing.

My Monthly Income Plan looks to achieve high yield today rather than wait for years for stock to increase dividends. If you purchase a 10% dividend yield, your investment will double in 7.2 years. If you find a stock trading at a discount – say 15% – you get a double in 4.8 years. This is cash flow doubling. If you have a dividend increasing 10% each year starting with $1, you have $1.77 in dividends at year 7. It takes a couple additional years for the dividend to reach a double. With high yields, time is on your side.

The second advantage with high yield is to compound your dividends. I use monthly dividend stocks so I can compound monthly instead of quarterly like most stocks.  This is where my income growth strategy happens. I take the monthly dividends to invest in another stock to create an additional income source. Over time, this strategy not only grows your income but it also diversifies your portfolio with more streams of income.

Your growth is faster because you are receiving high income today to reinvest into more shares over time. The investor now has control as they are focused on cash flowing income – not share price or market direction. You can’t take away the income you have already received if the market tanks tomorrow or next year. Lastly, the multiple streams of income are designed to produce financial freedom sooner than the 30-year dividend growth plan.

It is the investors decision – wait for years to grow your dividend yield if you have the time or invest for high income today to compound at a faster rate. For me, I want the most income today with the lowest long-term risk. This is why having cash flow each month is the lower risk to achieving financial freedom.

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