What can dividends do for you?

United Parcel Service (UPS) used to have the following slogan:  What can brown do for you?  That’s a fantastic question for dividends as well.  Below are 8 things dividends can do for you depending on the size of your dividend harvest.  This is why it’s important to grow your Dividend Farm.  The bigger the farm, the more work your dividends can do.

Grow your dividends.

Perks.  Even a modest dividend stream offers potential for occasional self-indulgence.  As a Dividend Farmer, I don’t recommend making it a habit since it can torpedo your long-term goals.  However, infrequent, small perks can maintain your farming motivation. 

Gifts.  Small dividend farms can produce enough cash for celebratory gifts for friends and family. 

 

Family activities.  Minor dividend distributions may fund family activities like a day at the funplex or date night with your significant other.  As dividend streams grow in frequency and volume the activities they pay for include family vacation travel or more extensive education and training.

Emergency expenses.  As your dividend income develops so does your ability to handle larger financial emergencies like an unexpected home furnace replacement or the purchase of new tires for the family van needing better tread before winter sets in.

Philanthropic giving.  No matter the size, a dividend income stream provides a means for extending help to those in need.  With the right mix of dividend stocks it’s possible to receive sufficient income to give $25 - $50 per month to your favorite charity without building a massive portfolio.  That kind of help may not mean much to you, but could mean the world to someone in need.

Emergency fund reduction.  A strong, reliable dividend stream can help reduce the cash needed to fill your emergency fund.  If you’re spending $4,000 per month and need a 6-month emergency fund you should have $24,000 on hand e.g., in a bank account.  However, if you have a consistent dividend stream producing $1,000 per month you’ll spend $3,000 each month from our emergency fund.  Consequently, your 6-month requirement is $18,000.  This means you’ll be able to put an extra $6,000 to work for you rather than parking it needlessly on the sideline.

Risk mitigation.  Powerful dividend streams reduce the financial risk when faced with an unexpected job loss.  If you find yourself unemployed but have a solid dividend stream, you’ll be able to fund part of your living expenses.  Coupled with a part-time job this may be enough to weather the storm until you’re working full time again.

Business building.  Building your own business may be your dream.  Start-up funding can be challenging.  If you’ve built a robust dividend stream and decided you’d like to stand up a side business, dividends may help fund the launch of the life you’ve dreamed of while your day job funds your current life.

These are examples of what a dividend income stream can do.  Others abound.  The point is that creating an alternate source of income – one that doesn’t require you to work a second or third job – reduces financial pressure when you’re distressed and enhances quality of life during the good times.  This is true only if you’ve invested the time and effort to build your Dividend Farm.  

If you won't take my advice, maybe Warren's wisdom is a better fit.

"Never depend on a single income, make an investment to create a second source." 

Warren Buffet

The thoughts expressed here are those of the author, who is not a financial professional.  Opinions should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.