My dividend investing YouTube Channel, PPC Ian, is now 29,000 dividend investors strong! With so many new subscribers and so many videos (198 on the topic of dividend investing spanning a staggering 69 hours and 30 minutes), I have received the same request over and over: "Ian, where do I start? Ian, where can a beginner go?" Of course, one route is to just sit down and watch all 198 videos for 69:29:59 straight, although that is probably not practical for most people! Today’s blog post provides an alternate route for those just getting started, it’s my quick guide to get you up to speed!
Today’s blog post is my "get started here" guide for anyone new to my YouTube channel or dividend investing in general. I hope you find this guide helpful. If you do, the greatest way you can thank me is by heading over to the PPC Ian YouTube channel and subscribing! Let’s get started!
What Are These Dividends?
I’m going to start at a philosophical level. Dividends are, in my opinion, the answer to the everyday person’s problems. I’m talking about feelings of stress, financial worry, and even a lack of "greater purpose" in life. I’m serious. Dividends are a life-changing force that bring a smile to my face each and every day. Dividends are the financial stability that allows us to all breathe a bit more, enjoy life a bit more, and be a little bit less tied to typical "job" income (progressively more so over time). More than that, dividends can bring a great sense of purpose to life.
Technically speaking, dividends are payments that stock shareholders (owners) receive for owning a shares of particular company. Let’s take an example: I own stock in McDonald’s (MCD). It’s my number three favorite dividend stock of all time (check out This YouTube video on MCD to learn more). Each quarter, McDonald’s pays me, as a shareholder, $1.16 for each share I own in the form of a cash dividend. Why do they do this? When you buy stock, you become a shareholder. When you are a shareholder, you are a part owner in a corporation. Dividend companies choose to take a portion of their profits, paying it back to shareholders.
Makes sense, right? After all, what’s the purpose of a company? Ultimately, it’s twofold: 1) Fulfill a greater purpose out there (in the case of McDonald’s, they feed billions) and 2) generate profits for the owners. When you’re a shareholder, you are an owner. Great companies, like McDonald’s, give their owners what they deserve: their cut of the profits. (Going to the philosophical level again, when you buy your first share of stock, you are no longer part of the employee class. You get to graduate to the owner class. Being an owner is the way to go in terms of getting the most out of life, in my humble opinion.)
Why Invest For Dividends?
What if I told you that you can earn money while you sleep? Think about it: Right now, you have to get up early, go to work, and earn money through blood, sweat, and tears to pay for everyday expenses like your cup of Starbucks (SBUX) coffee. What if I told you that some of your expenses (or even all of your expenses) can be completely covered without job income? What if I told you that you can sleep in, go for a long run, and then pursue your hobbies, and still pay for that cup of coffee? That’s what dividends are all about.
When you start investing for dividends, you slowly but surely build up a stream of passive income (dividend income). This is to be contrasted with earned income (job income). Earned income is great, and without earned income it’s impossible to have investment capital for dividend stocks. Also, I truly believe that we are all here to fulfill a purpose. So, I’m not saying that work is bad (I work incredibly hard each and every day). In the modern world, however, work can be bad because so many people are forced to work beyond the laws of time and physics. (Side note: Once all of your expenses are covered by dividends, you are then free to choose any "work" you like including pursuing your hobbies full time. Dividends create true choice in life.)
As I get older, especially now that I have a wife and two amazing children, I realize that time is so limited. I only have so many hours I can work a job. My job income is limited by time. However, if I take some of my job income and invest it in dividend stocks, those dividends turn into a stream of passive income! They work while I sleep, providing passive income. Other than the energy spent to earn my investment capital (through active/job income) and the energy to research and find great dividend stocks, dividends are completely passive (require no/little ongoing effort from me). They just come in, and I can then use them to pay bills.
In the early days those dividends will be small and may only pay for a Starbucks coffee here and there. However, one day, the dividend snowball will become so large that it can pay for ALL living expenses. That’s my personal and ambitious goal, especially living here in the expensive SF Bay Area. You can learn all about my Financial Independence Retire Early goals in This YouTube Video About FIRE.
Dividend Companies Vs. Growth Companies
There is a lot of misinformation out there about dividend companies. A lot of folks believe that it’s an "either/or" proposition when it comes to dividends and growth. A lot of people out there say that dividend companies do not grow. Meaning: You get some cool cash flow via dividend checks, but you sacrifice growth. The same people say that you must buy true growth stocks like Facebook (FB), those that do not pay dividends, to experience growth.
While it is true that some of those pure play tech companies that lack a dividend are growing very quickly, I am here to argue that dividend companies also provide growth: Growth in their revenues, growth in their share prices, and growth in their dividends too (we’ll get more to this later)!
It’s truly NOT an "either/or" proposition. Let’s look at my number one favorite stock of all time, Johnson & Johnson (JNJ), as an example. (By the way, make sure to check out This YouTube Video Where I Explain JNJ In Detail.) Comparing 2018 vs. 2008 (from their annual report, their 10-K):
- JNJ’s revenue is up 30%.
- Their net earnings are up 18%.
- And, their dividend is up a staggering 119% (it has been increased for 56 consecutive years).
Now, the growth for Facebook during the same period has, no doubt, been much more substantial. The point, however, is that it’s not "either/or". Dividends offer a relatively conservative strategy (as compared to growth investing) that offers a component of growth and also cash flow (dividend checks paid out to shareholder, like me).
I Prefer Dividend Stocks To Growth Stocks
At the end of the day, I prefer dividend stocks vs. growth stocks for a few reasons:
- I will, one day, pay all of my bills with passive income from dividends. Right now, I have the ability to pay a good chunk of my bills with dividends, as I have been investing in such stocks for over 20 years (with the bulk of my portfolio built in the last 10 years). I do not believe in selling shares to pay bills. Why? Stock markets go up and down. What if I need to pay a utility bill and the stock market is way down? In such a situation, growth investors are forced to sell really low. Dividend investors, by contrast, do not need to sell shares. They simply take their dividends and then pay the bills. If one wants true passive income, I do not believe there is a better avenue than dividend stocks.
- I am a conservative investor. I have tried it all: tech stocks, penny stocks, day trading, and more! At the end of the day, I have found that slow and steady really does win the race. Dividends offer a relatively conservative strategy that I can utilize to build true wealth and cash flow over time. I don’t have to take on the risk of high-flying tech stocks. I simply buy tried and true companies like PepsiCo (PEP). (By the way, make sure to Check Out My YouTube Video on PepsiCo.)
- I trust companies that pay dividends. When the management team decides to pay a dividend, they show respect to the shareholders (the owners). I truly believe that money sitting around in corporate bank accounts can get wasted on lavish company parties, unnecessary acquisitions, fancy office upgrades, and more. That cash belongs to the shareholders. I trust companies that pay dividends to treat the owners right, and to make smarter choices around their cash management.
- Dividend investing, in the United States, is relatively tax-efficient. Buying low and selling high (growth investing) can expose one to hefty short-term capital gains taxes (if one needs to sell to pay bills). Qualified dividends, by contrast, are taxed as long-term capital gains. (Check out This YouTube Video To Learn More About Dividends and Taxes.)
- Dividend investing gives me hope! Life is not always easy (and that is honestly a good thing, since success is so much sweeter that way). With each share of stock that I buy, I am one step closer to covering all of my expenses with passive income. I am always buying dividend stocks (in reasonably small amounts) since I like to stay in the game. That constant buying gives me the confidence and excitement that I am getting to my goal. Dividends are for everyone. They give the everyday person the means to automate income. And, it’s not only the destination that matters. Even $50/Month in Dividend Income starts paying for something! The early success is so motivating!
- Last, dividend stocks tend to perform well. Certain studies show that dividend stocks (value stocks) tend to outperform growth stocks very long periods of time. Personally, as a Stanford University Computer Science graduate, I know a lot about data. And, I know that data can be used in different ways to tell different stories. So, rather than rely too much on external studies, I just like to run the numbers myself. In this YouTube video, I share how My Stock Portfolio is Beating the S&P 500, with a lot less risk (in my humble opinion).
My Personal Dividend Stock Portfolio
So, you like the strategy and want to see what a typical dividend stock portfolio looks like? I have actually shared My Complete Dividend Stock Portfolio on YouTube. Some fun stats:
- I own 40 dividend stocks. (I filmed the YouTube video before I owned my newest position of Chubb.)
- I have been investing for over 20 years, but the bulk of my portfolio has been built in the last 10 years (especially in the last 7 years). A few times in my investing history, I have had to liquidate the lion share of my portfolio to fund a house down payment. I do not envision us moving anytime soon, and I do not anticipate selling my portfolio again. This time, it’s forever and I’m in it to automate all income and cover all expenses!
- I tend to buy stocks of all sizes: large cap, medium cap, and small cap. I specialize in larger companies since I like those that can stand the test of time without getting pushed around by activist investors and hostile M&A activity (mergers and acquisitions).
- I have made countless stock market purchase orders. I have placed orders as high as $10,000 and as low as $50. (You can learn all about My Personal Transaction History In This YouTube Video.)
- My average portfolio current yield is 3.89%. However, this is just my current yield, not yield on cost (a really important topic covered later in this guide and throughout my YouTube channel).
Getting Started With My YouTube Channel
At this time, we’re almost 2,000 words into this guide, and it’s getting really long just like my YouTube videos! I bet your time for a break from reading! To change things up a bit, I want to get you on over to my YouTube Channel, but I first want to give you a quick tour and some hacks.
PPC Ian YouTube Channel Guide:
- If you want to learn my opinion on a particular stock, please search on YouTube for "ppcian + STOCK-TICKER-HERE". For example, "ppcian WMT" will give you My Video on Walmart. (NOTE: My video titles don’t always include the stock ticker, but YouTube’s search functionality is super smart and will return the right ones for you.)
- If you want to learn about a particular topic, search for "ppcian + TOPIC-HERE". For example, "ppcian MLP" returns My Video on Master Limited Partnerships.
- Make sure to check out my video descriptions. They always contain a write-up of the video with helpful insights and links. Also, my newer descriptions contain timestamps. I know a lot of you have limited time, and those timestamps come by popular demand. Simply click a timestamp to fast forward to a particular point in the video that is of interest to you.
- Don’t forget my playlists. If you head on over to My Playlists Tab, you can quickly find my videos broken down by sub-category. The playlist view makes it a lot easier to find what you’re looking for.
- Head on over to My Videos Tab to see all of my videos in reverse chronological order. Just scroll down to see the older ones.
- Make sure to read the comments and participate in our thriving dividend investing community. We are 29,000 dividend investors strong and each video contains a multitude of insights in the comments. I personally try to read and respond to most comments. Many of our older discussions will provide a wealth of information to you.
- One last bonus hack: Here on my blog, check out the tabs at the top. I link to all of my important whitepapers, guides, and spreadsheets right here on my blog! I have published a ton of free spreadsheets, for example, and they’re all conveniently here on my blog. For example, here’s My Yield On Cost Worksheet.
Let’s take a pause now, and please head on over to my YouTube Channel. Hope you find a video or two that you enjoy. When you come back, it will be time to discuss some metrics!
Dividend Investing Metrics
Here’s where it starts getting a bit more technical. I’m not going to get too technical today, since this is a beginner’s guide. I am, however, going to quickly outline the metrics that matter to me when selecting and managing my dividend stocks:
- Revenue Growth: I like companies that consistently growth their revenue over time.
- Earnings (and Earnings Per Share) Growth: Again, up and to the right.
- Gross Margins, Operating Margins, and Net Margins: I prefer companies that have sold margins, since such margins are indicative of a competitive moat in the form of brand and intellectual property. And, great margins give a buffer should the company hit hard times. Of course, some industries are characteristically higher margin (software, for example) than others (utilities, for example).
- Strong Balance Sheet: I prefer those balance sheets that carry little debt, and positive shareholder’s equity (assets greater than liabilities). With interest rates at historic lows, many companies these days have taken on huge debt to fund share buybacks and acquisitions. These days, it’s a bit tougher to find those rock solid balance sheets, so it’s always refreshing when I find one.
- Growing Cash Flows: Sometimes, net earnings do not tell the entire story. I like to look at the statement of cash flows to ensure that the business is growing true cash flow over time.
- Dividend Yield: Calculated as the dividend per share (annually) dividend by share price, I like starting dividend yields that are anywhere between 2% and 8%. Lower than 2% is typically a bit too low for me (won’t provide meaningful cash flow in sufficient time). Above 8% is sometimes indicative of a "yield trap", a company that may not be able to maintain the dividend. Of course, there are always exceptions.
- Dividend Growth: I like companies that tend to grow their dividend over time. Those companies that grow their dividend get me to financial freedom the fastest because I can buy now and receive more dividend income with each year that passes. Typically, my favorite companies raise their dividend by 7% on average, per year.
- CAGR (Compound Annual Growth Rate): The CAGR formula helps dividend investors understand the average growth rate of any of the metrics discussed thus far (especially dividends). Just Google CAGR for the formula. Given an ending value, a starting value, and years elapsed, CAGR shows the average amount the given metric has grown per year (on average).
- Payout Ratio: Calculated as dividends/EPS, payout ratio gives a sense of how much of earnings are going to dividends and how much are being retained. Payout ratios differ by industry. Utilities tend to pay out most (all) of earnings. In general, for a household brand name company like Procter & Gamble (PG) or Kimberly-Clark (KMB), I like payout ratios in the 40-60% range over the long-run.
- Yield On Cost: There are two ways to calculate yield on cost: Simple Yield on Cost and Yield on Cost With Dividends Reinvested. Since these topics are a bit more involved, I have linked each of the terms in the prior sentence to my YouTube videos explaining them. I love these metrics because they give a sense of how far along I am and how hard my capital is working for me. They literally show me the dividend yield I am receiving (on my purchase price) after holding onto a position for number of years. On Altria (MO), I am now yielding 20% on cost on my first tranche (simple yield on cost). Meaning: For each $100 invested (not counting reinvested dividends), I am yielding $20 per year.
- Market Capitalization: Simply put, market cap shows how much a company is worth. I like to diversify by all different market caps (one reason I own 40 stocks), so I have exposure to small, medium, and large enterprises. My average market cap tends to skew a bit larger.
- Dividend Consistency: Since I invest for dividends and dividends alone, I always enjoy understanding how many consecutive years a company has paid dividends and also how many consecutive years a company has increased its dividend. I always apply CAGR calculation to here to understand dividend growth over time, on average.
- Share Price: Typically, I enjoy buying additional shares of my favorite companies when share prices are down (and the stock is in value territory).
- PE Ratio: Also known as the Price/Earnings Ratio, this metric gives a sense of value. Lower PE Ratios are good, as they indicate the company is trading at a lower multiple of earnings.
Dividend Growth Investing
Ok, that’s enough with the metrics for today’s beginner’s guide! I want to now take a moment to pay homage to the phrase "Dividend Growth Investing" (notice the word "Growth"). I don’t typically invest in dividend stocks. I invest in dividend GROWTH stocks. Meaning, my companies:
- Grow their business (revenue, earnings, and cash flow)
- Grow their dividends over time (dividends are not static but actually grow)
Of course, we already covered why it’s not "either/or" when it comes to dividend stocks vs. growth stocks. I like those that exhibit both! This is so important because those companies that are actually growing have the financial means to grow their dividends. And, those companies that grow their dividends give me a higher yield on cost over time! Meaning: My invested capital progressively works harder for me. I have time on my side, I can wait for the dividends to grow. And, after years have passed by, the compounding of those dividend increases gives me a huge yield on cost!
At the end of the day, dividend growth investing works because of The Miracle of Compound Interest. (Make sure to check out the YouTube video I just liked, to really understand how the math works.) I’m talking about:
- Corporate revenues and profits growing.
- Dividends growing over time.
- Dividends being reinvested to buy more shares (until one chooses to tap into dividends to pay bills.) There’s a key example at the beginning of My Latest Video that goes into this concept in detail.
- More capital being invested over time.
- It all compounds tremendously over time!
At the end of the day, I’m throwing a lot at you here. The key insight is that compound interest and time work on your side. Invested capital is important too, but if you have some time until your retirement (or early retirement), that time and the nature of compound interest can get you a lot more cash flow than you would think! Slow and steady wins the race. Dividend investing is for everyone!
Helpful Websites and Tools
On my YouTube channel, I regularly share stock analysis, like My Recent Analysis of United Technologies (UTX) and Raytheon (RTN). Where do I pull the metrics for my analysis?
- First and foremost, I like to go the actual corporation websites and pull their annual reports (also called 10-Ks). I have to spend some time digging, but I always prefer pulling data direct from the source. Such annual reports offer the most helpful info on the income statement, balance sheet, and statement of cash flows. Worth noting: I also like to follow quarterly reports (10-Qs), but I do not place quite as much weight. I am investing forever, so quarterly fluctuations and results do not matter to me quite as much, as I’m all about the long-term.
- I also make use of the Nasdaq website. Nasdaq is great for showing dividend per share history over time. If you Google "STOCK-TICKER dividend history", Nasdaq always shows up towards the top.
- Last, I like to make use of Yahoo! Finance. Yahoo! Finance offers great summarized data, but I always like to verify data just in case.
Now, you may be wondering what’s a great place to get started actually buying dividend stocks? I tend to suggest the following avenues to newer investors: Dividend Reinvestment Plans (check out my YouTube video) and also Large, Established Brokerages (also check out my YouTube video).
The financial industry builds up a lot of data about how commissions can eliminate results. And, that is true for many investors who pay ongoing commissions. Dividend investing tends to be commission-friendly since one buys and holds forever. As such, as long as my buy commissions are less than two percent (and my dividend reinvestment is free or close to it), I do not get too worried about commissions. I actually prefer to pay commissions if I can leverage a really big, reputable, and well-established brokerage firm.
No More Drama
The stock market is full of drama. I’m talking about people literally shouting on the trading floor. I’m talking about stock prices surging and then plummeting. I’m talking about people on TV giving their opinions on how the world is ending! I’m talking about IPO (initial public offerings) in companies that have no promise of earning anything, ever!
Dividend investing erases all the drama. In fact, I do not even care about my aggregate portfolio value, since I never plan to sell. When you buy and hold forever with no plan of selling, it truly is a liberating experience. You free yourself from the worries of stock market fluctuations. (Of course, I do check my portfolio value form time to time just to feed by ego and as an overall signal if the companies I own are doing ok.)
At the end of the day, the only metric I follow closely is my aggregate dividend income. Regardless of the economy, the types of companies I own tend to pay (increasing) dividends over time. Even during a horrible recession, I can watch my dividend checks come in (at increasingly higher levels). And, I can measure the percentage of my expenses covered by such dividends.
Even greater: When the stock market is in the gutter, I can take comfort that new capital (and reinvested dividends) are buying more shares at progressively lower prices. I love a plummeting stock market because it allows me to reach financial freedom faster. Dividend investing really is a drama-free strategy. We all have enough to worry about in our lives, our stock portfolios should not be another cause for concern. Our stock portfolios should be a source of comfort, another stream of income that can work when you cannot (24/7)!
This guide would not be complete if I failed to mention risk. Any stock market strategy, including dividend investing, carries some element of risk (especially since the stock market is towards the end of one of the largest bull market runs of all time). A Stock Market Crash could be around the corner.
I am literally ready for my stock portfolio value to drop 50%, and I am fine with that! Why? I only invest for dividends, I do not care about short-term portfolio value (I actually get excited when stocks are down since I can buy more value that way), and I do have some cash on the sidelines for emergencies (an emergency fund). Ultimately, you will need to assess your own risk tolerance. (Stock market investing may not be for you if you would be concerned about a 10% portfolio value drop.) And, you will certainly want to consider paying off all debt and creating an emergency fund before beginning any stock market investing.
Dividend investing does carry an element of risk, but quite frankly anything in life worth having carries an element of risk!
Dividend Investing Is For Everyone
I created my YouTube channel, PPC Ian, to share my passion for dividends with the world. PPC Ian is dividend investing for EVERYONE. It’s my firm belief that everyone can start small, go slow and steady, and build a meaningful stream of dividend income. That dividend income can provide great comfort, meaning, and purpose in your life.
Also, along the way, do not forget that your dividend income can also be used to make our world a better place. For example, you could choose to donate a portion of your dividends to charity. Or, you could allow your dividends to buy your own time back so you can do good deeds first-hand. Dividends open up a world of greatness. I wish you tremendous success on your personal dividend investing journey!
DISCLOSURE: I am long McDonalds (MCD), Starbucks (SBUX), PepsiCo (PEP), Chubb (CB), Walmart (WMT), Procter & Gamble (PG), Kimberly-Clark (KMB), Altria (MO), and United Technologies (UTX). I own these stocks in my stock portfolio.
DISCLAIMER: All information and data on my YouTube Channel, blog, email newsletters, white papers, Excel files, and other materials is solely for informational purposes. I make no representations as to the accuracy, completeness, suitability or validity of any information. I will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use. All information is provided AS IS with no warranties, and confers no rights. I will not be responsible for the accuracy of material that is linked on this site.
Because the information herein is based on my personal opinion and experience, it should not be considered professional financial investment advice or tax advice. The ideas and strategies that I provide should never be used without first assessing your own personal/financial situation, or without consulting a financial and/or tax professional. My thoughts and opinions may also change from time to time as I acquire more knowledge. These are, as discussed above, solely my thoughts and opinions. I reserve the right to delete any comments for any reason (abusive in nature, contain profanity, etc.). Your continued reading/use of my YouTube Channel, blog, email newsletters, whitepapers, Excel files, and other materials constitutes your agreement with and acceptance of this disclaimer.
COPYRIGHT: All PPC Ian videos, Excel files, guides, and other content are (c) Copyright IJL Productions LLC. PPC Ian is a registered trademark ™ of IJL Productions LLC.