Creating Dividend Income Year over Year from $0

I got back into the stock market in 2020

I was out of the stock market for more than 5 years. What I mean is I didn’t have my own self-managed brokerage for over 5 years. I still had money going into my Individual Retirement Accounts (IRAs) and 401k.

Why? Because like most normal humans trying to build wealth I couldn’t diversify – I had to make a decision. I wanted to get into Real Estate and the only way to do that without getting wildly creative was to sell off the stock. I’m glad I did because I made a great return on the real estate and cash flow to boot.

When I saw the stock market take a dip and had more cash on hand I decided to get back into my self-managed brokerage. I also added more exposure when I sold off some of my properties (and purchased some Real Estate Investment Trusts or REITs). This time though I was more thoughtful in my process inspired by two friends (one of which is an author on the site – Bryan Jenkins) and my ultimate why – create passive income from dividend stocks.

Sounds like an analyst on the news. So many advisors and influencers think they have the answers or the next hot technical analysis to predict the market. Then over the next 10 years you find out that you would have been in the same spot going the traditional safe route of dollar cost averaging into some ETFs.

Dividend Income Growth after starting fresh

My first year of dividend income from my self-managed brokerage after getting back into the market was a hefty $125.89 in 2020. I was only invested in VPU, VGSLX, VTSAX, VYM, and VOO. All ETFs and Mutual Funds. I continued to reinvest the dividends and dollar cost average into the ETFs (and tried to do it below my cost basis or average price I paid for the shares). 

At the beginning of 2024, I still strongly believe in my long-term dividend growth strategy but have included a few individual holdings like OPEN and LCID I write options on. Also saw my highest dividend year so far at $3,786.01 (weighted yield of approximately 3.82%).

What I did differently this time

I wrote about how I lost a decent amount of money on the stock market my first time around (in my first published book) because I let my emotions get the best of me. Sold off stocks when I should have just held on to them. I promised myself I’d be approaching things differently so that I had a process to my decision making and risk mitigation.

1) Do due diligence: Understanding what I’m buying and what were the historicals of the fund. I also use SeekingAlpha to connect my portfolio and get easy to read analysis from different people following the stocks. The hack there is to scroll to the comments and see what’s really going on.

2) Keep it simple: Other than my two REITs that I follow (O and MPW), I’m keeping it real simple with some strong, long term Vanguard ETFs (VOO, VYM, VNQ, VPU). I’ve also got 3 ETFs in my Roth IRA to continue the march towards simplicity. While I do have a few other stocks, I primarily am looking at those to sell and buy options not any type of dividend growth.

3) Follow some key metrics: This was inspired by Bryan when we first started reviewing getting back into the market. Paying attention to the important metrics for dividend growth stocks like payout ratio (how much is being paid out in dividends 40% to 60% being healthier), is the P/E Ratio being under or on target with the S&P500 meaning it’s fairly or undervalued, and is it a dividend aristocrat

4) Get control of your emotions: I lost money last year in options and have lost money when I was in the stock market last because I let my emotions get the best of me. I read the news. I read articles. I saw the stock go up or down and sold. Instead of paying attention to earnings, market cycles, the macroeconomic outlook, I listened to my emotions and it caused a REALIZED loss. Me taking the time to solidify my exit strategy and paying attention to 1,2, and 3 makes controlling my emotions that much easier.

Starting out strong

Dividend investing is going to be part of my long term strategy for… well the long term. I will use options and put that income into longer term ETFs. I’ll also take some of my crypto profits and most likely place it into the stock market and real estate. Why? Because I want this portfolio to become a good portion of my yearly income and that takes some time. 

If you’re looking for a good brokerage, I use Vanguard and Robinhood (Robinhood is primarily for my Option Spreads). M1 Finance has become known as a stronger player in the game.

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