Can you live off dividends?

During the COVID pandemic of 2020 there have been a lot of differences with our lives and a lot of differences with the economy. But when these external factors happen, it always presents an opportunity.

The stock market in March fell over by a significant amount (if you bought on March 23rd to be exact, then congratulations, you are probably up about 30%) but since then the market has recovered to its pre-COVID levels not including the FTSE 100 (still 20% below pre-COVID levels). This here presents an opportunity for willing investors. There are numerous companies that are still trading at discounted prices, and some of these companies pay dividends. This means that you can buy strong companies that normally pay good dividends at a much lower price than they should be. For example, if you bought a FTSE 100 dividend paying company that has decreased in price because of COVID, like Royal Dutch Shell (RDSA) which is trading at £9.71 per share compared to £17.23 per share pre-COVID. They have decreased the dividend since the pandemic but they still pay a dividend, furthermore, when COVID is controllable, it is possible for the share price to recover and the dividend to increase, this means you will get capital growth and income. That income that you are effectively buying will come at a 20% discount.

It’s not just Shell that’s like this, there are plenty of dividend paying companies at a huge discount at the moment. If you are a high net worth investor, let’s say £400,000 of free funds to invest, if you used this strategy and let’s say you earned about a 5% dividend yield. Which is about £20,000 of income just from dividends, that’s crazy. Then what if the share price recovers by 10% and dividends increase, that’ll be a £40,000 appreciation and an increase on the £20,000 dividend income.

If you have the capital available and adopt this strategy when big dividend paying companies take a dip, then it is a very smart way of building serious income. This strategy mixed with the magic of compound interest can lead to increasing your portfolio into the millions in about 10 years time.

Remember this is not financial advice, its just my thoughts and opinions 🙂


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s