Why Dividend Income Investing is 𝐍𝐎𝐓 a Good Idea for Passive Income

𝐂𝐡𝐚𝐫𝐭𝐞𝐫𝐞𝐝 𝐖𝐞𝐚𝐥𝐭𝐡 𝐌𝐚𝐧𝐚𝐠𝐞𝐫 shows you Why Dividend Growth Investing is 𝐍𝐎𝐓 a good idea for passive income.

Everyone on YouTube is talking about how to make passive income, and the darling ‘passive income idea’ is Dividend Income Investing... a magical strategy that pays you income into your account each month. Unfortunately, all is not as it seems and there are many reasons why very few professional investors use this strategy and the ones that are struggling or have gone out of business...

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐃𝐢𝐯𝐢𝐝𝐞𝐧𝐝 𝐈𝐧𝐜𝐨𝐦𝐞 𝐈𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠

When a company makes a profit it can do one of three things with the cash:

Invest in projects that have a strong chance of maintaining or increasing their return on equity
Fund acquisitions of other businesses
Return profits to shareholders

Returning profits to shareholders is favoured by companies that do not feel that they can invest the money in their own business and still maintain their return on equity. Apple, Coke, British American Tobacco are all companies with excess profits that they cannot find a good use for.

They then have two options for returning these profits to shareholders:

Share Buybacks
Dividends

Investopedia - Share Buy Backs Vs Dividends

Dividend Investing is a strategy that invests in companies that have a history of paying a high and hopefully growing dividend. Investors are there core reasons for using this strategy:

To generate income (which it does)
To achieve market-beating returns (which it has done)
Because they love it! (the methodical process is addictive)

In this video, I explore the major flaws in each of these, which renders this strategy unsuitable for 99% of retail investors.

Articles and further research:
DALBAR 2020 Quantitative Analysis of Investor Behavior
https://www.dalbarcanada.com/dalbar-2...

S&P Research - A Fundamental Look at S&P 500 Dividend Aristocrats
https://www.fa-mag.com/userfiles/ads_...

Financial Times (paywall) - Value and growth investments gap at 25-year high
https://www.ft.com/content/aa752110-4...

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