I AM GOING TO TELL A SMALL FACT. DO YOU KNOW RELIANCE INDUSTRY'S OWNER MR. MUKESH AMBANI EARNED RS. 15 CRORE SALARY IN 2019. BUT HIS HOUSE "ANTILIA" 's ELECTRICITY BILL WAS OF RS. 9 CR. HOW IT WOULD BE TO ENJOY SUCH A LUXURIOUS LIFE IN SUCH A SMALL SALARY?
The income of Middle - Class People is Salary and that of Rich People is Dividend which always grows more than inflation rate. To earn Salary we have to spend time whereas if we talk about Dividends, money works for us. As Robert Kiosky, says "POOR AND MIDDLE CLASS WORK FOR MONEY WHEREAS MONEY WORKS FOR THE RICH PEOPLE". This is so, Rich People become more richer and richer and Middle - Class remains in the same place. THIS IS ACTUALLY A MENTAL GAME.
But, WHAT ARE DIVIDENDS? WHY DO SOME COMPANIES PAY? CAN MIDDLE - CLASS MAN RETIRE EARLY ON DIVIDEND INCOME? IS DIVIDEND INCOME STABLE? WHAT ARE PROS AND CONS OF DIVIDEND INCOME?
Because when we talk about Stock - Market and Investing many people get frightened and mental block exists in their brain that it is very difficult thing.
First Question will come to your mind, WHAT ARE DIVIDENDS? The simple and short answer is that when we buy stock of a particular company, we become the Owner of 00.0000000001* of the Company. Which means we own a part of piece of the Company and when we uphold it we become part owner of profits. When a Company makes huge profits, it will be good news for us, because profits will ultimately come to us. Board of Directors will decide whether the profits has to be distributed among shareholders or to retain.
WHY COMPANY PAYS DIVIDEND
If Company is Big and Matured and there is no scope for more growth, Directors usually pay Dividends to Shareholders. Actually, the thing is, that most people don't know that Most Stable Companies whose Business model is mostly stable and whose profits also continuously rises, these Companies already announces currently the rate of dividends for particular years. There are many Stable Companies in India which pays Dividend and these have enough stable dividends. So, Finally when a Company pays Dividend, it's directly credited to your Bank Account just like the Salary which comes directly to your Bank Account. So, you have understood the Concept of Dividend and you can earn wealth through Stocks in two ways ---> One way, when you Buy low and Sell high and Second Way, when you hold the Stocks after being bought. This is the only easiest way to earn wealth through Stock - Market.
If you check records of last 100 years, many millionaires have created wealth only by holding stocks. When we hear of Stock - Market we always listen - when to buy and sell stocks. But if you check the record of Warren Buffet, he has not sold the stocks in life. He has only sold those stocks which are very bad, but usually he buys good stocks and holds them. For example, Warren Buffet earned more dividends than the salary of CEO of Coke. This is because he bought COKE STOCKS long years ago and remain invested.
You might be thinking - CAN WE RETIRE EARLY ONLY WITH DIVIDEND INCOME?
Let's see?
We should know the bitter truth that Indians merely 99% don't plan about retirement. Our Retirement Plan means our Children who will support when grown older. To some people their property rent is their Retirement Income and to some their little savings is their Retirement Income which due to inflation becomes very less in value which is very sad thing according to me. Because to invest in Real - Estate you want a big amount and no one talks about stocks because people feel very risky. Now Let's see How can we Retire with Dividend.
Most people tell to me that stocks are risky, but I tell you that stocks are not at all risky. Not investing in it is a BIG RISK. I am talking about buying stocks and holding them for a long - period of time. Which means you will buy those stocks which there is no fear to sell. Now, you will think if you will not sell the stocks, how you will earn profits. As I have told your earlier, there are two ways to earn profits through Stock - Market. Firstly, it's CAPITAL INCOME secondly it's DIVIDEND INCOME. Now we will see, how Dividend is the World's Best Option for Retirement Income.
If we buy some good Company's stocks, we can usually expect returns around 15%. If you invest Rs. 1000 in Fixed Deposit which pays you interest at 7%, you will get Rs. 70 next year and even after 10 years you will receive Rs. 70 and after years and so on in the form of interest. Not less, not more than this. If you invest Rs. 1000 in Stocks and if your company pays you only 2% Dividend, then you will get Rs. 20, but after 10 years when Company grows by 15% CAGR then Market - Price of Stock will be more than Rs. 4045 and Company will pay Dividend as per Market - Price, means 2% will come to Rs. 81. So, here you waited for some years and you will start receiving benefits before retirement and After 20 Years your Stocks price will be more than Rs. 16000 and will receive Dividend Rs. 327. Now you compare where is Rs. 70 and Rs. 327. The trick is that The long you remain invested, the more profits you will receive forever. And this thing Warren Buffet has clearly understood. So, Warren Buffet always choose Dividend Paying Stocks and remain invested for long - time. Not only this, but your Original Capital is also growing by buying Dividend Paying Stocks as compared to Fixed Deposits.
If you are young in your 20s or 30s, you can apply this strategy and easily retire before your 40th Birthday. If you are afraid to loose money by investing in stocks, you can create Portfolio of 10-15 Good Companies. Even if you are not understanding, which good companies to select, then you can invest in Dividend Paying INDEX FUNDS and you will not need to research the Good Companies. This is game of Compounding. It doesn't get quickly. It takes time. Warren Buffet every year writes letter to his shareholders which states "THE STOCK MARKET IS A DEVICE FOR TRANSFERRING MONEY FROM THE IMPATIENT TO THE PATIENT". Dividend Investing Concept is not new, it's 150 years ago World's most Richest Person has said "DO YOU KNOW THE ONLY THING THAT GIVES PLEASURE? IT'S TO SEE MY DIVIDENDS COMING IN". This was said because to middle - class people SMS of Income comes from only one Company, whereas to Rich People SMS of Income comes from 10-15 Companies.
Lastly, Investing is very simple, but not easy. This simple process is made complicated by people from Financial Industries who wants to make money and for some people investing will remain always difficult who can't use common - sense, who are greedy. Because Investing is all about common - sense. According to me, to become rich in such an easy way was not there before. You have to study little bit finance and become financially - unbreaken.
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