Part 1 – Searching for Dividends
People have been investing in things that produce continuing benefits for millennia. Milk cows and olive trees, rental properties and dividend-paying stocks are some examples. Some investments require active maintenance (feed that cow!), while dividends from stocks generate passive income. (footnote 1)
Owning dividend-paying stocks and reinvesting the dividends steadily over time (in more shares of the stock), is a time-honored strategy for potentially getting compound growth and building wealth. For some investors, dividends are boring. Companies that pay dividends are traditionally not experiencing dramatic growth. They are not very exciting. For other investors, dividends are a reward for patience and loyalty.
Remember this principle. You are going to see a different application for it later.
“Dividend” also has a secondary definition: a continuing advantage or benefit that you get because of something you’ve done.
My guess is that you are currently generating dividends and don’t know it.
You have been working, enduring, overcoming, helping, loving, serving and growing. And from time to time you are rewarded with an unexpected dividend – a payment for patiently holding onto an investment that is otherwise not providing a lot of excitement.
In the investment world, a dividend can be a reward for holding that investment that is not very exciting. In fact, dividends are sometimes paid by corporations because they attract patient, loyal investors. If you think about it, you will identify dividends that you are receiving by being patient, loyal, and sticking with an investment that is not very exciting.
For me – and probably for most of you – these are things that require persistent effort and patience:
- Raising children
- Staying with a relationship
- Helping aging parents
- Building a skill
- Learning to play an instrument
- Teaching anything
- Loving someone who is “difficult”
- Building faith
- Keeping hope
- Watching Downton Abby
My friend Justin Wagner had progressed through undergraduate and graduate school, gotten married and had kids along the way. Bought a home. He also went through a period of inflation, swelling to 255 pounds from his high school weight of 185. Looking for a way to break the trend, he started riding a bike to work, found some technology to track his progress and after some fits and starts started riding a road bike in earnest.
When Justin – who is 30 years younger than me – asked to ride with me last year, I thought it would help me get a better workout. I had no idea what I was getting into.
Here’s Justin when we started riding together:
Justin turned out to have a solid sense of competition, and riding together was great for both of us. But within a couple months Justin had found his groove and moving to new levels of output and enthusiasm and I was struggling to keep up.
Then he really took off. In 2015 he rode almost 8,500 miles. His weight plummeted. He’s down 74 pounds from his peak and is currently at 181 pounds, which is below his high school weight 185. He rode from Seattle to Portland one day. That was 206.6 miles. On another ride in the Rockies he grabbed 13,000 feet of elevation gain. In case you didn’t know – that’s a LOT.
I recently asked Justin if he got anything out of this experience other than the weight loss he was shooting for.
He pointed to two things: he had started racing in USA Cycling sanctioned races. He raced in 16 and won 4 of those races, and placed 2nd through 5th in another 5. He hadn’t imagined that the dedication to riding a bike for exercise and pushing himself to new levels would result in competitive success.
Below is a picture of Justin (crossing first) at one of those races.
The second dividend: friends. Justin found an enthusiastic community of cycling friends who have encouraged him and given him more even more reasons to show up and get on the bike.
I’ll add one more dividend that I’ve seen Justin get paid for this investment in fitness:
In that first summer riding together, Justin and I had just finished a challenging hill-climb segment of an early morning ride and were back on the flat road, cranking as hard as we could while the sun peaked over the mountains, like a kid who had just been given the most amazing gift of his life, Justin turned to me with a massive smile on his face and yelled at the top of his lungs “THIS IS AWESOME!”
It was an awesome dividend for me too, Justin.
Mastery – it’s the compound benefit of reinvesting dividends.
(1) I won’t parse the term and discuss whether dividends are passive income or not. Dividends and rental income, for example, are commonly referred to passive income in popular usage, but are not treated as passive income by the IRS for tax purposes. http://www.investopedia.com/terms/p/passiveincome.asp; https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Loss-ATG-Chapter-3-Passive-Income
The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.