I Discovered the Power of Dividend Investing in Just One Year

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While those who watch and play around in the market frequently know all about dividends, for the average Joe or Jane who invests casually, dividends might be a new experience. The good news is that dividends can and potentially should be a considerable part of your investment strategy and even help offset some losses. 

One Redditor is learning this firsthand with a post in r/dividends after trying a 12-month “purposeful investing strategy.” Over the past year, they have successfully grown their investment portfolio through dividend earnings and believe this is the way they will invest in the future. 

As someone who intentionally holds stocks because of their dividends, it’s hard to find fault with this Redditor’s approach, just one of a billion different strategies available to investors. 

What Are Dividends? 

If you’re unfamiliar with dividends, that’s okay, as there is a straightforward explanation of how they work. In simple terms, dividends are the percentage of a company’s earnings paid to every shareholder as a share of the company’s profit. In most cases, dividends are paid quarterly, and each company can determine how much it wishes to pay out. 

Most investors opt to look at stocks that pay out their dividends in cash, but some companies offer additional shares as a dividend payment. It’s also important to know that not every stock pays a dividend. Still, it’s believed that as many as 50% of publicly traded companies have some kind of dividend available to their shareholders. 

What Is This Redditor’s Strategy? 

So, with some background on dividends, how did this Redditor succeed in the first year? Well, they noted in the comments on the post that they are 50% in SWVXX right now but have a portfolio that is 50% in MM, 40% in ETFs, and 10% in individual stocks. 

When they did back-of-the-napkin math, they discovered their yield was around 5.15%, which is not too shabby for year one results. Thankfully, this strategy seems to be paying off, especially since they didn’t take much of a hit during the early-April tariff news that collapsed the market for a few days. Their IRAs weren’t so lucky, but their dividend-focused investment strategy paid off and kept them from feeling the brunt of market volatility. 

While not every comment in this thread aligns with the original poster’s strategy, there’s plenty of encouragement overall, which is pretty good for Reddit comment sections. 

Unfortunately, some of the Redditor’s initial comments around why they chose 3mo, YTD, and 1-year options to show the return on the investment have been removed. However, it’s safe to say that these are good timeframes in your first year of dividend investing to see how well it’s performing. 

Thankfully, the comments tell us that this Redditor follows the DRIP strategy, a “dividend reinvestment plan.” This approach encourages compounding dividend income to grow a portfolio, and it is widely recommended for those with large stock positions in dividend-paying companies. 

Should You Have a Dividend Investment Strategy? 

While you should always talk to a financial advisor about an investment strategy personalized to you, dividend investments can be a good direction to follow. For anyone in the FIRE world, dividends are widely recommended as they can provide ongoing income that can either be reinvested for additional growth or pulled out of the market to be used as cash. 

Separately, dividends can help weather market downturns and are likely to be paid consistently, even if a company isn’t performing as well as it has in the past. Retirees may want to focus less on an investment strategy because it takes time for dividend income to add up, which is why it’s ideally suited for the FIRE movement and those who have, in some cases, a few decades to see compounded growth. 

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