Are you worried about dividend cuts?

As a result of COVID-19, dividend cuts have been prominently discussed in the news last year (2020). Based on the headlines you would think that dividend investing is dead, but the reality is much different. Keep reading to get a better understanding of how you can continue to earn more this year and in the years to come.

What is a dividend?
A dividend is money that you receive from a company, just for owning their shares. For example, if a company is paying a $1/share dividend and you own 1000 shares, you will receive $1000 for as long as you own those shares and as long as the company continues to pay the dividend. The dividend gets deposited automatically into your trading account, you can spend the dividend if you wish or re-invest it into more dividend paying stocks.

If a company reduces its dividend you will earn less dividend income from that company. If a company eliminates its dividend, you will receive zero dividend income. This year the news headlines have been scary, and portraying dividend investing as futile, have a look at these recent headlines:

From the above headlines you would naturally assume that dividend cuts have been widespread, and that your dividend income will be much less this year, that would be true if you purchased mutual funds, index funds, ETFs, or stocks without first applying the 12 Rules of Simply Investing. You see, funds (mutual/index/ETF) own hundreds and thousands of stocks, and most likely you will see a decrease in your dividend income, because you will own companies that have cut their dividends this year. However if you applied the 12 Rules of Simply Investing and specifically hand-picked quality stocks, you will most probably see an increase in your dividend income for two reasons:

Rule #4 states that you should only invest in companies that are recession proof. Recession proof companies have continued do to well this year, but non-recession proof companies like Boeing, GM, and Ford eliminated their dividends this year. Had you applied the 12 Rules of Simply Investing you never would have invested in Boeing, GM, or Ford in the first place.

Quality companies are companies that pass the 12 Rules of Simply Investing. Have a look at the recent dividend increases this year:

As you can see the average dividend increase is 10.3%, and that's during a world-wide pandemic!  Has your salary increased by 10.3% this year?

Of the 245 stocks tracked in the SI Report, from January 2020 to December 2020, 88% of the companies either maintained their dividend or increased their dividend. Only 15 stocks out of 245 eliminated their dividends, and a number of those 15 companies have stated that this is only a temporary stop to their dividend payments.

No one can predict which companies will decrease or increase their dividend in the future. Therefore how do you have any confidence in building an income generating portfolio? The answer lies in looking to the past, take a look at the history of dividend increases from the following companies:

A dividend increase equals more money in your pocket. Think about the number of recessions and market downturns we've had in the last 40, 50, 60 years, yet companies like the ones listed above have continued to increase their dividends each year, this should give you the confidence to invest in dividend paying stocks.

Yes, financial freedom is possible with dividends. By starting to invest early you can build a portfolio of stocks that will provide you with growing passive income each year. The dividends will eventually cover your living expenses, without dividends you are only hoping for the stock price to go up. But, hope will not cover your living expenses only dividends can do that.