Transcription
You were going to follow a dividend reinvestment plan, which means now every time you get a dividend, instead of taking that money and going out and buying a car, you're going to take that money and reinvest it back into this fund. That way, when you make money, you're going to buy more shares of this dividend fund, which means it's going to be buying you more cash flow every time you get paid.
And if you follow this dividend reinvestment for the next 30 years, meaning every time you get that cash flow, you just dump it back in to buy more stock, well, now things start to look a little bit different. Now your investment portfolio is not going to be worth 1 and 1/2 million dollars, it's going to be worth a little bit over 3.1 million dollars. And now you're not going to be making $5,000 a month passively from dividends, you're going to be making about $11,700 a month passively from dividends, all because now you stayed consistent with your dividend strategy, you invested in a strong company that was growing not at crazy rates, but consistently. And then the key is you reinvested your income for the next 30 years. That way now you can have a solid stream of income.
In order to understand the math, let me go over some specific examples to help you achieve these results or maybe even potentially better. Again, I cannot guarantee your returns and past returns do not guarantee future returns, but let's go over some specific examples.
So ETF category number one, more on the safer side, is just to invest into the core foundational companies in the United States economy that are paying out strong dividends and have been working to grow those dividends. Let me go over a few examples.
Example number one is SCHD. As a disclosure, I'm personally invested in SCHD. This is an ETF created by Schwab. You can buy it on pretty much any stock brokerage account and this focused in on investing in high dividend paying companies in the United States, but also companies that are working to grow their company, their profits and their dividends year after year after year. So it's focused more in on those stable and growing companies. At the The of are this video, SCHD is paying out a dividend of around 3.4% a year and over the last 10 years, they've grown their dividends by approximately 10.6% a year. This is their dividend growth rate on average over the last 10 years.
Example number two is an ETF called DGRO. This is an ETF created by iShares. This is focused in on again, dividend growing companies, but the difference between SCHD is you only have to have grown your dividend for the last 5 years as opposed to the last 10 years like SCHD, so it's a little bit more broad than SCHD. DGRO is paying out a dividend at about 2.4% at the time we are recording this video and over the last 10 years, they've grown their dividend by an average of 8.6% a year over the last 10 years.
Example number three is VIG. This is the Vanguard Dividend Appreciation ETF. This is a fund that's investing in companies that have paid out and increased their dividend every year for at least the last 10 years. So again, this one's focused in on a little bit more stability. It has a lower yield of about 1.5% dividend a year, but they've grown their dividend by an average of 7.7% a year for the last 10 years. The idea here is you're getting less risk and higher quality.
Then example number four is we have VYM. This is another fund created by Vanguard. This is focused in on the higher dividend yielding companies in the United States. This has a higher yield than VIG, which is focused in on appreciation, but the appreciation growth every year is a little bit slower. So you're getting about 2.3% dividend a year and the dividends are growing by around 6 and 1/2% a year. So now you can put these number into your calculator to see if you're investing your money consistently for the next 10, 20, 30, 40 years and your dividends are growing at rates like this, what does that mean for your income in the future?
Category number two is almost the opposite of number one. Instead of focusing in on the core United States stocks, now we're going to go internationally. Now the nice thing about international companies and countries is there's more risk for more potential return. And some of these countries have companies that are producing strong cash flows, so they're paying out higher dividends. So, let's go over some international funds and what their dividend yields could look like.
Example number one is VYMI. As a disclosure, I'm personally invested in VYMI. This is an ETF created by Vanguard that's focused in on high dividend paying companies internationally outside of the United States. Again, comes with some more risk for more potential return, but also some more diversification in your dividends. This is currently paying out around a 3 and 1/2% dividend a year. And for the last eight or so years, because it hasn't really fully hit that 10-year mark of data, it has grown their dividends by around 8% a year on average.
Example number two is SCHY. This is a fund created by Schwab. This is another international ETF that's focused in on high dividend paying companies that's working to grow their dividends. Now, the thing about this ETF is it only started a few years ago. So, there's not a lot of data to back it just yet. But right now, at the time of recording this video, it's paying out around 2.3% a year and has grown its dividend by around 8.28% a year on average.
Now, let's get just slightly more aggressive on companies here in the United States focused in on the mid-cap growers. Mid-cap companies are those that are $2 billion in value up to around $10 billion in value. So, they're pretty big, they're pretty established, but they're not the Apples or the Nvidias or the Teslas of the world. Now, the nice thing about these mid-cap companies is they're not the most risky companies out there, but they're also at a stage where they can still grow, so you can see even faster dividend growth with these companies.
For number three, we're going to come back to the United States and remove some more risk. This is going to be some of the more safer options, focusing in on dividend aristocrats only. A dividend aristocrat is a company that's worth to pay out and increase their dividend every year for the last 25 years. The idea being, if a company has done this for the last two and a half decades, there's a good probability they'll do it again this year and next year. Is it guaranteed? No, absolutely not. But the idea here is it has a strong track record.
Example number one is NOBL, Noble. This is an ETF that focuses in on S&P 500 companies, meaning they're part of the 500 largest companies in the stock market, but they're also dividend aristocrats. So, companies that are part of the S&P 500 that have also paid out and increased their dividend every year for at least the last 25 years. At the time I'm recording this video, it's paying out a dividend of around 2.3% a year, and over the last 10 years they were able to pay out and increase their dividends by an average of 8.5% a year.
An alternative here is DGRW. This is an ETF created by WisdomTree. This is focused in, and again, United States quality dividend growth companies. Companies that have been working to pay out and increase their dividends year after year. At the time I'm recording this video, it's paying out a relatively low dividend of about 1.3% a year, but their dividends have been growing relatively quickly. Over the last 10 or so years, it's increased the dividend by about 13% a year on average.
Now, for category four, we're going to talk about mid-cap companies. These are interesting because these are not your Apples and Teslas of the world. These are your companies that are valued somewhere between $2 billion and $10 billion. So, they're also not your startups. They're in a pretty decent size, but they also have room to grow, so there's more upside potential with their dividends.
Example number one is REGL. This is an ETF that's focused in on dividend aristocrats that are part of the mid-cap stock range. So, these are companies that have been working to pay out and increase their dividends year after year after year. In this case, for over 15 years. At the time I'm recording this video, REGL is paying out around 2.4% a year dividends, but it's been working to increase their dividends by approximately 11.6% a year over the last 10 years on average.
Then we have PEY. This is an ETF created by Invesco that's focused in on high quality companies that have paid out and increased dividends every year, but also companies that have been working to increase their stock price. At the time we're recording this video, it's paying out a dividend of around 4% a year with about 8.1% dividend growth rate on average for the last 10 years.
And then if you just want a little bit more broader exposure to these mid-cap companies, maybe less of the companies that have paid out and increased their dividend every year, less of those dividend aristocrats, you could take a look at something like DON, d o n. This is an ETF that's created by WisdomTree. This is again giving you more broad exposure to mid-cap companies. At the time we're recording this video, it's paying out around 3% a year dividends, and their average annual dividend growth rate for the last decade is about 5.9%.
And this brings me to category number five, the highest risk category, the one that I'm not the biggest fan of, but people have been seeing some success with it, and it's been a growing trend, so I want to talk about it. This is focused in on covered call ETFs. This is more on the trading side of things. The idea is it's going to focus in on certain trades where you don't have to worry about the trade, but you're investing in a ETF that's focused in on finding trading opportunities that is going to pay you income through these dividends. Again, more risk, more volatility, but more potential if that's something that you're interested in.
Now, without getting into all the technicals of how covered call ETFs work, the idea is you're essentially buying a fund that's renting out stocks to people that are trading these options, and in exchange you're getting this fee, this premium, and that's what your dividend is. So, it gives you more income today, but you don't really see that compounding or growth of the income, and then when you're in a bull market where markets are booming, there's also a cap on how much money you're making because then the options traders are also now exercising their options, so you generally just try to see more income today as opposed to more growth in income in the future.
Example number one is JEPI. This is a fund created by JP Morgan Chase Bank. This is again focused in on these types of premium income stocks where it's holding S&P 500 companies and generating income by renting these out to options traders. Over the last 12 months it's generated about 8.2% in income.
Alternative number two is JEPQ. This is again created by JP Morgan Chase Bank focused in on the exact same thing that I just talked about, but these are more focused in on Nasdaq stocks as opposed to S&P 500 stocks. At the time of recording this video over the last 12 months it's paid out around 10 and 1/2% in income.
If you enjoyed this clip and you want to continue your financial education journey, I have another video that I think you'll love. All you got to do is click that button right over there. And for those of you who want to stay up to date on the top finance and business news, you can join Market Briefs, my free financial newsletter, by clicking that button below. >> [clears throat] >> Thank you for watching and I'll see you in the next one.