Why dividends?

I'm a pretty open person, and I tend to be enthusiastic, especially when I'm doing something that will radically change my life. Since I discovered investing, I feel like I've really revolutionized my outlook on things. I'm not saying that saving most of my money and investing it in dividend growth stocks is the best path to take in life, but I think it's the best one for me.

I’ve been having conversations with colleagues lately about my outlook on life, investing, and saving. Most people generally agree that saving is a good way to approach finances and life in general. I get asked, “Why not save some money and open a hot dog stand?” Well, as much as I love hot dogs, I wouldn’t want to stand around for seven hours stuck in one place. While opening a hot dog stand is a very simplified version of the question, the example is valid. Why not open a business instead of investing in dividend growth stocks? Let’s explore this question.

Success rate  

Although the figures are disputed, it is generally accepted that 2/3 of new businesses never make a profit. That leaves us with only a 1 in 3 chance of making money from these young people. The start-up costs are very high, which doesn't help matters. You are your own employee and your own boss. It usually takes a lot of know-how, hard work and determination. With increasing dividend values ​​there is of course a risk of losing money, for example by investing in an overvalued company or a company that makes products that people don't really need. A company may have to cut dividends for one reason or another. However, I believe that the chances of making money on these investments are good. The companies I invest in are publicly traded, which means I can look at their balance sheet and see if they are making money. If the company is good, if it sells a product that people want or need, and it has a long dividend history then I think the odds are good.

Start-up costs 

With dividend growth stocks, the income is passive. This term is very important. By passive, it usually means that little or no work is required to receive the income. There are also almost no start-up costs. You can open an account with most online brokers with as little as 500 $. Even a hot dog stand requires more costs. I also believe that large blue chip companies are better at investing money than I am. While self-confidence is an undeniable quality, I have to admit that Coca-Cola has a better ability to make money than I do. I would bet that McDonald's has a better chance of having a higher return on investment than I do. I will stick to buying my hot dogs at the local grocery store.

Margins  

Companies are able to increase their profits and dividends because they have a great brand, a great product, and a competitive advantage. Because of these qualities, these companies have a certain type of pricing power. Coca-Cola can raise its prices worldwide by a few cents, and have a big impact on margins. An increase of just 1 cent on the price of a 12-pack of Coca-Cola would have a bigger impact than if I tried to raise the price of my hot dogs by 25%.

Time  

The big thing about dividend growth is that the income is passive. I’ve talked about this before, but it’s important. I don’t have to work to make money. When I invest in McDonald’s or Wal-Mart, I’m allowing them to make money for me. Once I have a large enough portfolio, my dividends cover my expenses. I don’t have to answer to anyone, manage payroll, track expenses, do bookkeeping, or anything else. It gives me time, which is something I value much more than money. Once my bills are paid, I can volunteer, spend more time with friends, family, travel, relax, or do whatever else I want. I could even continue working if that’s what I want to do. The key is that my time is mine. And time is not something you can earn, buy, or steal. Money can be won, lost and found again. But once time has passed, you can't get it back.