Readers know I like passive income.
Building up a strong stream of passive income is the route to financial independence and life freedom.
Being able to travel with your family, while earning a good salary from your portfolio, is rewarding. It’s also satisfying because you’ve built those assets up strategically over the years.
But a lot of dividend stocks don’t grow as fast compared to smaller caps or technology companies. Good dividend payers are generally larger companies. They distribute much of their income to shareholders, as opposed to reinvesting it.
This misses a few important things:
- Compounding dividends (when they’re not needed for income) can form the largest part of average returns over many years.
- For global investors in New Zealand, the FIF tax rules mean that average dividends over 5% p.a. could put you in a better tax position.
- A reliable history of dividends and increasing those dividends points to business health and growth over the long-term.
A lot of the higher dividend-paying companies today are found in Europe and to a lesser extent Australasia. Of course, the US has the largest stock market in the world. It is also one developed country that has seen relatively rapid growth.
Source: Visual Capitalist
Unfortunately, average dividend yields across US indexes tend to be lower. Stock prices (by multiple of income) tend to be higher. US markets are hot and overanalysed. It’s harder to find value.
Further, when it comes to buying dividend stocks, you don’t want to be buying based on the yield alone. High yields can disguise other problems, such as the firm being a cash cow on its deathbed.
Are there some bright spots?
Let’s take a look at some of the US companies paying dividends above 5%…
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