My Second Job Isn’t A Job At All

This article originally appeared on The Div-Net on September 17, 2011.

It’s a tough economy right now. The unemployment rate is currently at ~9.1%. I feel lucky to have a full-time job and I put in 50+ hours a week, working as hard as I possibly can to create value for my employer. But, as someone who wants to become financially independent at a young age, diversifying my income has become paramount. However with jobs scarce and my time limited, I don’t see a second job in my immediate future. That’s why I have a second source of income from my main job that’s completely passive. This source of income will hopefully one day outpace the earnings I receive from my main job and exceed my expenses.

This second source of income has no time clock. In fact, I’ve never even showed up. In the past year, I’ve averaged over $85 per month, but haven’t worked a minute. How can it be?

Dividends.

They’re like my invisible helper. Whether I show up to my day job or not, the companies I have invested in will still pay me, and cash will show up in my brokerage account regardless. By investing in quality dividend growth stocks that have economic moats and growing earnings, I can leverage the power of these companies to provide me with income whether or not I have full-time work.

Keep in mind that dividend growth investing isn’t completely passive. It takes time and effort to research companies, keep an active eye on your portfolio and consistently buy quality companies. But, the great thing is that once your portfolio is set-up it should take minimal time to keep an eye on your investments and monitor any potential dividend holds or cuts. Once you have a large portfolio set up with quality dividend growth stocks you should be able to earn thousands of dollars a month and spend very little time actually “working” at it.

Imagine your dividend growth portfolio like a farm. You plant the seeds in the spring (your youth) and you harvest the dividends in the fall (middle and older age). I’m planting as many seeds as I can now while I’m young so that my dividend harvest can be as large and diversified as possible later in life. That way, when a storm rolls through (dividend cuts), I can lean on my other crops (companies) to keep my farm healthy!

What about you? Are you planting the seeds now?

Thanks for reading.

Comments

  1. Anonymous says

    Excellent article.

    I am equally inspired to grow my farm one seed at a time. My ultimate goal is to receive $25,000 a year in dividends; at that point I feel that I would be financially independent and I could consider quitting work, working part-time or other things.

    Last month I earned about $110 in dividends and I’ve been investing for about a year now. Imagine when I will receive $1000 a month? Can’t wait to get there. I feel empowered seeing my dividends grow and more in control of life.

    I just started a blog documenting my journey to $25,000 dividends per year. I’ll keep you notified once it gets updated.

    25000-dividends.blogspot.com

  2. says

    Great post. I actually have a very bright 8 year old buy, and I am pleased to say that I have gotten him extremely interested in finance and he now knows how to read stock tables and to look for dividends and PE ratios. We had guests over for a bbq a couple months back and one of them was talking about his profile on linkedin, and my boy burts out “that has a PE over one thousand, don’t buy that!” It was priceless, I am now working on explaining DRIPs to him:)

  3. thomasa510 says

    I find that dividend income investing certainly has taken a lot of my time, but I truly love researching and investing, so it is time well spent.

    However, I have a fairly diversified portfolio, maybe too much so, but it allows me to concentrate less of my time on worrying about a specific stock and more on finding which one seems cheap at the moment. Always have a few I am targeting at a moment.

    The question arises, due to the comment by Anonymous about regarding how he is saving for $25k a year.

    What is your income goal to become independent of your career and what size positions do you try to create?

    For myself, my goal is $100k in passive (dividend and interest on bond funds) income. However, I live in NY where expenses are much higher than in other places. Love the area and not looking to leave my family anytime soon.

    As I am young and have plenty of time to invest, I try to dollar-cost average (over a couple of months of investing) into my positions to $100 annually (have many above and below still) and hope the dividends start to compound. I DRIP almost all of my investments. I add to positions above the $100 in annual dividends if they get cheap or I select a new stock to invest in. I don’t want to exceed over $1k in dividends per position, which should allow me to sleep at night.

    Overall I am betting on turning investments from $100 income annually to $1,000 income annually by:

    - Having a 10-20 year investment horizon (from retiring at 40-50yrs old)
    - Selecting healthy dividend growth companies that raise dividends annually
    - Compounding dividend growth through DRIPs
    - Regularly contributing to my portfolio each pay check
    - Being rational and choosing compelling stock entry points.

    These are the basis of my investing strategy.

    How do you all go about building up your passive income portfolio and what are your income goals for independent life?

  4. says

    Mantra, I came to this style of investing from a different point of view. I’ve been investing over the years and have been unsatisfied with the results (the last decade was hard on index investors).

    This is where value investing comes in. Getting paid from profits is a return that can’t be ‘lost’. It’s also easier to value a company because its track record is more easily analyzed.

  5. says

    This is a nice second job to have. However, it’s really time consuming during earning seasons. Don’t get me wrong, I enjoy reading financial statements and listening to conference calls. Nothing comes easy in life. I think the extra work is worth the effort.

    Hope you had a great thanksgiving!

  6. says

    Anonymous,

    Great stuff. Thanks for stopping by.

    I checked your blog out. It seems we’re very similar in age level and dividend income. It’ll be fun to keep each other motivated as we go along! I wish you the best on your journey to $25k in annual dividend income!

    Keep in touch and I’d love to exchange ideas. Best wishes!

  7. says

    thomasa510,

    Thanks for stopping by.

    It sounds like you have a great investment thesis and a good head on your shoulders. I agree with you on diversification. The more I invest, the more I believe that I’m best off by having as many quality companies as possible. If I’m receiving income from 50 companies and one runs into trouble than I still have 49 companies paying me and, in turn, I can continue to pay my rent.

    As far as what size positions I try to create, I’d ultimately like to have 40-60 positions with ~$9,000 invested in each. That would be a portfolio with a final value of ~$450,000 and at a 4% withdrawal rate I’d have to live on $18,000 a year. That should be more than enough for me to live on, even counting in a 3% inflation rate over the next 10 years. I’m also open minded to moving to a developing country to reduce expenses. I’m currently living on less than $15,000 a year.

    As far as my overall strategy, I’ve tried to be pretty clear on that. Based on my current income/expenses I hope to continue to invest anywhere from $1,500 a month to $2,500 a month into dividend growth stocks that are fairly valued or undervalued. That provides me with on average $24,000 a year to invest and at that rate I should come pretty close to my $450k target portfolio value. If I can live strictly off dividends my portfolio value will continue to rise. That’s the ultimate plan.

    I just try to live as frugally as possible. This provides me with a two-fold benefit. First, I maximize my ability to invest as much money as possible. Second, I learn to live on less and therefore will require a smaller portfolio/less dividends to live off of.

    Best wishes on your way to your investment goals! Keep in touch!

  8. says

    sfi,

    Great stuff and an interesting take there. That’s very cool how you came from index investing to value/dividend investing. I completely agree with your take on it…that receiving the dividends is the “proof in the pudding” as they say that a company is profitable and has cash. Nothing says “we have cash” like receiving a check. And, once you receive that cash you can reinvest it as you wish and it’s a guaranteed return on investment vs. waiting for the share price to rise which may or may not occur.

    Thanks for stopping by!

  9. says

    Henry,

    I agree. Setting up a dividend growth portfolio with great individual stocks can be time consuming up-front…but once it’s running you should need minimal time to monitor your holdings. You pointed out the times when you’ll likely have to boost the amount of time you spend keeping an eye on things: earnings seasons.

    I had a great Thanksgiving. It was frugal with fried chicken, potato salad and a pumpkin pie. I enjoyed it!

    I hope you enjoyed yours too! Take care buddy.

  10. says

    I do agree as well. To ensure you invest in the right dividend stocks, finding your margin of safety there is alot of research. it may be worth it as you can continue to reinvest in those good companies.

    However, have you thought about starting a side business?

    I plan to gain SGD 12000 per annum through dividends.

    Drizzt
    Investment Moats.com

  11. says

    Drizzt,

    I agree. It does take some time and effort to start a passive income stream through dividend growth investing and there will still be time to monitor and rebalance your portfolio, however I would say that the time/income ratio is much less than working even part time once you’re humming along.

    Best wishes on your investments! Keep in touch.

  12. says

    Hi DM,

    Like what you said. I am definitely planting seeds now. I have just set up my global dividend growth portfolio to compliment my Singapore dividend portfolio. You have inspired me to do this.

    I like the feeling of even when I am sleeping, somewhere around the world, a company is still earning money for me. ^^

  13. says

    Dividends Warrior,

    Great stuff. It’s nice to plant those seeds now and harvest your fruits later in life! Good job on the diversified global portfolio. Although most of my holdings are companies based in the U.S., these companies are large multinationals that receive large parts of their revenues from global markets. In addition, I hold foreign companies like Total (TOT) and Telefonica S.A. (TEF) for further diversification.

    I agree. Nothing like earning money while you sleep!

    Best regards.

  14. says

    Everyday Freethought,

    Thanks for stopping by.

    I’m not sure how it would work for others, but for me personally I have been able to tolerate my day job more because I see the finish line now. Before I found dividend growth investing I was just showing up to work for 50 hours a week or so with no real rhyme or reason. I just knew I had bills to pay.

    Now I have a plan and I’m executing it. The job is still a means to an end, but the end is no longer just paying for rent and food but funding a way out of wage slavery.

    Best wishes!

  15. says

    Hello. I wanted to say I really enjoy your story and your desire to achieve financial independence. I am a 20 year old student/investor with similar goals. My main goal is to have a million dollars by age 30 and with that equity I could easily achieve $20,000-$30,000+ in dividends per year for the rest of my life. (This amount is likely to grow with inflation). I just got started about 2 years ago and I currently have a net worth of $18,000 with no debt. I try to stay frugal. I hope that when I am 30 I will be financially independent to the point where I won’t HAVE to work, but still will work part-time or maybe do work that is more enjoyable but not as financially rewarding (It’s a lot easier to take risks when you have $30,000 guaranteed income). I love having passive income and its great knowing that I will have this money coming in whether I am working or not. Isn’t it great there are companies that will pay you money just to own a piece of their stock? Anyways, as you can see I am on a similar path as yours but just a little earlier in my journey. Is there any advice you have for me?

    • says

      riffdex,

      It sounds like you’re off to a terrific start. You’re sitting in a much better place at 20 than I was, that’s for certain. If you keep it up and maximize your time and potential I’m sure you’ll get to where you want to be.

      The only advice I can give is to stick with your plan. It’s easy to plan things and read advice, but much more difficult to implement it in real life. Stick with the plan, don’t become subject to lifestyle inflation and I’m quite sure you’ll be further ahead at 30 than most people are at 60.

      Best wishes!

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