Working for a salary means getting paid for the hours one works. Which means… to continue to get income, one must continue to work.
Of course there is some flexibility in this definition. There are people who work on commission, and these kinds of commission incomes can have wide-ranging effects. Sometimes the income allows for a wide latitude in how much one is compensated. Some people have insurance of one kind or another (worker’s comp, disability, etc.) so if one cannot work, there can be income.
But by and large, time is traded for income. Overall, if one does not work, income stops.
Dividends, on the other hand, do not stop based on any criteria about the owner of the stock. Let’s look at some of the few reasons dividends might be reduced or stopped: The company paying the dividends has a reversal in business and reduces or eliminates dividends, or even goes out of business. The company might be acquired by a second company that does not pay dividends. There’s not much else that can happen. None of these reasons have anything to do with you.
The worst case scenario is if you are employed by the same company, and your employments is terminated, and it goes out of business and stops dividends. That will normally put you in a world of hurt. The same reason we diversify our stock ownership also applies even more so to that situation. Diversify your income sources. Being dependent on only one source of income is dangerous.
Back to Dividends
By diversifying our income sources, namely by owning stock in multiple dividend-paying companies, means we are not dependent on any one company. Aside from different companies, an enhanced approach is to diversity into difference industries. That way if one industry falls on hard times, we still have income from other industries.
Once a person owns some stock-paying dividends, that person could stop working, and the dividends do not stop. I could go on vacation, and my dividends do not stop. I could back to sleep, and my dividends do not stop. I could go through all sorts of life changes, and my dividends do not stop. I could change jobs, and my dividends do not stop. I could take a second job, and my dividends do not stop. I could retire and my dividends do not stop. On and on it goes, and my dividends do not stop.
I don’t need a license to own stock or collect dividends. I don’t need a permit. I don’t need permission. I don’t need to get an ‘ok’ from anyone. Unlike a job, there is no boss, there are no annoying co-workers, no office politics, no evaluations, no job requirements, no commuting, no lack of advancement, no glass ceiling, no competition for promotions, no competitiveness, no boorish managers, no snarky comments from some idiot down the hall.
If and when the company in which you own stock decides to increase its dividend, it just happens. No others need to sign off or agree or approve your raise in dividends. There is no other approval needed from anyone when companies raise their dividends. No need to justify one’s existence to get a raise in dividends. No dealing with an HR department or payroll department. No pushback from some bean counter to get your dividend increase.
And Then …
If I am prescient enough, I will continue to invest. For me, owning dividend-paying stocks does not end when I first buy my first stock. I continue, over time, to invest both new money as well as reinvest many dividends. As a result, both my share count and my income continues to increase.
As it happens, according to U.S. tax law, dividends are taxed at lower rate than income from a job. Go figure. Regardless, the same amount of money from dividends will be taxed at a lower rate than salary income. While there are different levels of tax on dividends based on one’s overall income, the rates are lower than the different levels of tax on salary.
How are your dividends? Let me know here.
The illustration of a copperhead snake on dead leaves is from “Concealing-coloration in the animal kingdom; an exposition of the laws of disguise through color and pattern: being a summary of Abbott H. Thayer’s discoveries” by Gerald Handerson Thayer, Abbott Handerson Thayer, and Howard Ketchum, published in 1909. Courtesy Biodiversity Heritage Library, Smithsonian Institution.
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