Hi Tim. I’ve been reading your site for the past six months… [a few paragraphs I removed]… I’m just starting out, and I gotta say, receiving my first $100 dividend check completely changed everything for me! I’d rather make $100 for owning a stock than make $200 in a day from my job I know im odd. Thank you so much for your site, and keep up the writing! I check for updates every day! Signed, Graydon.
There. Right there. Graydon, you get it. The understanding of almost every individual in this country is that, in order to generate money, you have to give up your time and do something. If you don’t show up to work on Monday, Tuesday, and Wednesday, you’ll be lucky to still have a job, and you almost certainly won’t be receiving any cash for those three days missed. Even if you own a small business, the conditioning remains: you have to go out there and do something yourself in order to receive money.
The only sustainable, long-term solution to getting regular cash infusions (outside of pensions, bonds, certain real estate, annuities, etc.) is to become a part owner of a publicly traded company in which you outsource the management to somebody else.
Nowhere in the e-mail did you mention which company sent the money your way, but I am going to assume that you are sitting on 455 shares of General Electric so we can work our way through a story. While Jeff Immelt and the rest of the management team at GE are coming up with new ways to sell wind turbines, jets, gas and electric pipeline infrastructure, light bulbs, microwaves, fridges, and water irrigation, and Lord knows what else, you will receive the benefit of their work product as long as you keep those 455 shares to your name. All you have to do is stay out of jail, not get divorced, not lose a lawsuit, and not become delinquent on your taxes to remain a sweet beneficiary of whatever those 455 shares produce over the rest of your life. You are in the driver’s seat; those shares are your until the day you die unless you choose to do otherwise—you’ve got the hammer.
You can watch Judge Judy all day, you can try a different flavor of Baskin Robbins ice cream every day of the month, or you could test whether it is truly possible to sleep a full 24 hours in a day. There is no connection between your labor and the cash generated by General Electric once you get your hands on those shares of stock in the brokerage account.
What I like though is this: you are also in a position where your money starts to make money in spite of itself. You know those stories about Michael Jordan that emerged in the 1990s about how he would go out for dinner and spend thousands of dollars at a restaurant, and then come out richer by the end of the dinner because of the dividends, rents, and interest generated from his wealth during the two hours he was eating?
Yeah, you’re not there yet, but you are at the point where you can spend the money for the rest of your life, and start to enter that sweet spot territory where you can reap the benefits of what you created and grow richer at the same time. As best I can tell, General Electric’s dividend should double within the next seven years (as the core business is growing nicely at a 8% clip, and there’s still a bit of room to boost the payout ratio as the dividend growth rate hasn’t quite finished recovering from the financial crisis).
What is the implication of that? Even if you choose to spend your dividends every ninety days for the next seven years, you could still be reaching a point by 2021 or so where those checks automatically become $1,000 each year just from the growth of the dividend alone. That singular decision to get 455 shares would have been benefitting you from the growing dividends you received from 2014 through 2021, and then they would cross the hallowed $1,000 per year threshold somewhere around there. It’s great to see people delay gratification, act intelligently, and then use the proceeds to make their life easier.
I have no idea what stock sent you the $100 dividend check. It could have been BP. It could have been Chevron. It could have been Clorox. It could have been Emerson Electric. I don’t know. But I do this: you’ve just reached the “seeing is believing” territory of income investing. When you’re just starting out, all of this stuff is theoretical. You have to use your imagination a little bit. You have to channel that Benjamin Franklin work ethic to get the gears grinding forward into motion so you can see the results of your hard work.
Long story short, congratulations! The first $100 dividend check is like needing to lose 45 pounds, going to the gym for a month, and then seeing that you’re 10 pounds down. You still got a ways to go, but you’re starting to see that it is working. You’re seeing the connection between delaying gratification and then receiving the rewards by pursuing business ownership. I’m excited for you. Plant another dozen or two seeds like that, and you’d be only be a few years away from having complete control over your time. Best of luck.
Originally posted 2014-08-11 08:00:10.