Many high-achieving professionals and entrepreneurs accumulate over $1 million in lifetime earnings before they reach 40. Unfortunately, those earnings do not automatically translate into a higher net worth within the African American community.
According to “The Road to Zero Wealth“ report published by Prosperity Now and the Institute for Policy Studies, the median wealth of Black Americans will fall to zero by 2053 if current trends continue. One way to reverse that net worth trend is to move from everyday consumer to strategic investing in the stock market.
There are multiple ways to invest in the stock market, but if you’re looking to earn an extra stream of income, you should harness the power of dividends. In my book, Dividends Are a Queen’s Best Friend, I describe dividends as the “money that a company gives you as a reward for investing in them.” It’s typically much better than the rewards you get for shopping at some of your favorite stores. Not only do you get “rewards points” when you purchase dividend-paying stocks, but you can gain a piece of ownership in the company.
Dividends are a great way to generate passive income in the stock market and start earning an extra stream of income from the world’s top companies. You can reinvest your earnings and gain access to more dividend income in the future due to the power of compounding. If you’re strategic, consistent, and committed to learning as much as you can, you can create a dividend portfolio that allows you to fund your future lifestyle and pay your bills every month!
Are you ready to get started on your dividend journey? Here are three things you should consider as you seek to build an extra stream of income from your investments.
1.) Stock dividends don’t discriminate
Many asset-building strategies have come with decades of discrimination that have made it more difficult for African Americans to generate wealth. This isn’t the case with dividends. It doesn’t matter if you are Black or White, you can get access to dividends as long as you invest in dividend-paying assets. No credit check is required and you don’t need thousands of dollars to start your dividend journey. The amount of dividend income you can make is based on your participation in the stock market. If you want to increase your dividend income, all you have to do is buy more shares of a company stock.
2.) You can get an automatic pay raise
Before investing in any company, it’s important to do your research and due diligence. You want to make sure that the companies you invest in align with the goals you have. If you have a goal of expanding your dividend portfolio every year without being heavily involved in the process, you might want to look into dividend growth companies. These are companies that increase their annual dividend amount frequently.
Let’s say you have 1,000 shares of a stock and a company pays an annual dividend of $4 per share. You would earn $4,000 in dividend income. Next year, the company increases the annual dividend to $4.25 per share. You would earn $4,250 in dividend income without lifting a finger. That means you just earned an automatic pay raise in your account! If you’re interested in dividend growth companies, you can start by researching companies that have paid dividends for over 10, 25, and even 50 consecutive years.
3.) Dividends come with special tax benefits
While many are solely looking at income opportunities to build wealth, you can’t neglect the impact managing your expenses can have on your wealth building goals. Taxes are the single largest expense most people have. If you can allocate your money in a way that allows you to reduce your tax bill, you can achieve your wealth building goals at a faster rate.
Did you know that you can pay less taxes for dividend income than earned income from salaries and wages? The U.S. tax system rewards investors with special tax incentives that are not available to those who only have one source of income from a job. Depending on the type of dividends you have and how long you’ve had them in your portfolio, you are eligible for reduced tax rates. Speak to your CPA or tax adviser about long-term capital gains rates and how you can structure your dividend portfolio to reduce your tax liability.
If you want to start your wealth-building journey in a stress-free way, dividend investing is a simple way to get started. Plan your future success right now and prepare to earn an extra stream of income for a lifetime.