Dear DTA,
I’m looking for residual income from stocks.
-Andy G.
Hi, Andy.
Thanks so much for writing in. We love hearing from our readers.
Your goal of obtaining residual income is a very attractive and worthwhile goal to have.
After all, having residual, or passive, income means you continue to get paid long after the work is done.
Most people are paid to work. They show up to a job and get paid for their time/effort/skill.
That’s pretty sweet!
But I’ll do you one better.
What if you could develop a stream of growing residual income?
I’m responding to your query because I was once looking for the same thing.
I found myself a broke, unemployed, college dropout a few years back.
Obviously, I was very unhappy.
But I was determined to turn it all around.
I developed a plan that involved a lot of hard work, frugality, and intelligent investing.
By leveraging all three to the hilt, I was able to go from below broke at 27 to financially independent at 33.
And I laid out how that whole journey unfolded in my Early Retirement Blueprint, which is a road map to early retirement that almost anyone can follow.
The key to my financial independence, however, is passive income.
See, Andy, I knew that I wanted to work once and earn forever.
Why only get paid when I show up to a job I don’t really like?
Developing passive residual income is absolutely vital to living a free and happy life, in my opinion.
The residual income I need to pay my bills is generated by my FIRE Fund – a six-figure collection of high-quality dividend growth stocks that generates five-figure and growing passive dividend income.
By simply living below my means and investing in high-quality dividend growth stocks like those you can find on David Fish’s Dividend Champions, Contenders, and Challengers list, I was able to completely and totally change my life around.
And there’s no reason you, too, can’t develop a massive stream of passive income!
I’ve chosen dividend growth investing as the long-term investment strategy that would unlock financial independence for me.
And it’s obviously turned out very well.
Dividend growth investing is a very simple, straightforward, and effective strategy.
Fellow contributor Dave Van Knapp lays out how this strategy works, why it’s so great, and how to successfully implement it via his Dividend Growth Investing Lessons.
This strategy basically involves buying stock in wonderful businesses that have excellent fundamentals, competitive advantages, relatively low risk, and, most pertinent to our discussion, growing dividends.
You build a diversified portfolio full of world-class businesses.
And then you rely on them to do what they do best, which includes growing their profit regularly and routinely.
Since any publicly-traded company is effectively owned by its collective shareholders, shareholders have a right to that capital.
Moreover, any publicly-traded company is bound to use its capital in the most efficient and useful way possible, which often means paying a dividend when the profit is more than what a business needs.
As profit grows, so does the dividend.
That all translates into growing dividends when you’re dealing with a truly great business.
In fact, a lengthy track record of growing dividends often serves as a pretty good initial litmus test of business quality.
The likes of Johnson & Johnson (JNJ), Coca-Cola Co. (KO), and Apple Inc. (AAPL) are all high-quality dividend growth stocks, and they’re all featured on David Fish’s aforementioned CCC list. And they’re all wonderful businesses, of course.
Oh, and all three stocks are also the common stock portfolio managed by the legendary investor Warren Buffett for Berkshire Hathaway Inc. (BRK.B). These are just three of many dividend growth stocks in that portfolio.
If that’s not saying something about high-quality dividend growth stocks, I don’t know what will.
While dividend growth investing is an excellent strategy for you to consider for generating the residual income you’re looking for, it’s not something you should approach blindly.
You’ll want to make sure you’re doing your due diligence before buying any stock.
And perhaps most important, you’ll want to make sure you pay the right price.
This is why I personally helm the Undervalued Dividend Growth Stock of the Week series.
This series takes time every Sunday to highlight what appears to be a high-quality dividend growth stock that’s trading for a price that’s less than its estimated intrinsic value.
I discuss fundamentals, competitive advantages, risks, and valuation.
Every idea is potentially a very compelling long-term investment idea for dividend growth investors.
And these ideas are presented to the community at no charge.
You can generate some serious residual income from stocks, Andy.
But it’s ultimately up to you to take the next step.
There’s no time like today to take that step toward a richer and freeer future for yourself.
I wish you luck and success.
Jason Fieber
Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.