Why Optometrists Should Consider Dividend Investing

DIVIDEND INVESTING

One thing that should be taught in optometry school to all aspiring optometrists, is what to do with all that new money you get when you finally start seeing patients.

It can be jarring in a way to go from making basically nothing, to being able to (hopefully) cover your expenses and then some.

The idea is to have as much “and then some” money as possible, so you can make that money work for you instead of giving it away to a bank or lender. That’s when you need to think about investing your hard earned money as wisely as possible.  

Investing comes in many flavors, and the “best” investment you can make depends on your timeline and personal situation. Investments can include:

  • stocks
  • bonds
  • mutual funds
  • real estate
  • oil
  • commodities
  • and much more

There is no way we can cover all there is to know about investing in one article, so I would like to focus on one particular investment strategy: dividend investing.

What the heck is a dividend?

A dividend is simply a regular payment a publicly traded company makes to its shareholders. Companies can do many things with their surplus cash. They can save it, put it into research and development, or pay off debt.  

They can also give some profit back to their shareholders, and that’s what a dividend is. This is usually paid in regular quarterly increments, and the shareholder has the option of converting this payment into cash or reinvest it back into the company or other companies.

Not all companies in the stock market pay dividends, and companies can halt or reduce their dividend amount as they see fit. Coca Cola, for example, has been paying a steadily increasing dividend to its shareholders for 50 years!

An Income Producing Strategy

In a nutshell, a dividend investing strategy focuses on buying companies that pay consistently high dividends over a long period of time. This is a great strategy for optometrists and others looking to create an additional stream of steady income. The idea is to use the steady dividend payments from a variety of companies to create a passive income stream that can potentially last a lifetime.

Although the income from dividends is “passive,” there is a lot of work to be done in order to get to that point. Companies rise and fall, and so do their dividends. So someone following this strategy will need to keep up with the latest stock news, and more importantly, be able to evaluate lot of different companies.

If pouring over company statements and crunching numbers is your idea of a good time, then dividend investing may be the thing for you. If you would prefer something that is more “set it and forget it,” then investing in a broad based index fund may be better for you.

The bottom line is, if you enjoy reading about the market, are willing to learn how to evaluate the dividend potential of stocks, and are looking for a steady stream of passive income in the future, then building a portfolio of dividend producing stocks is something to seriously consider.

An Alternative

Nowadays, everyone wants the best of both worlds when it comes to investing. They want minimal work, low risk and high returns. While this type of investing still eludes us, there is a way to invest in dividend stocks without doing much work upfront.

Investing in a dividend focused mutual fund can allow you to take advantage of dividend paying stocks without having to do the research on your own. In essence, you’re paying someone else to build a portfolio for you. Dividend mutual funds will usually give you a solid dividend return, but you have a chance to do better if you go at it alone and are willing to do the hard work. There’s always a give and take.  

Like any mutual fund, the key is finding a top performing fund with low fees. The Vanguard High Yield Index Fund (VHDYX), is a good example of one such fund. Many other companies offer dividend focused mutual funds, so do a little research and find which one works for you.

A dividend investing strategy can be a great way to produce extra income. It’s a little bit different than being a landlord since you can do most of the work on a computer, and it’s a little bit different than being an index fund investor since it requires you to consistently be evaluating individual stocks.

But if researching stocks is something you enjoy, then investing in dividend funds can be a wonderful income producing strategy, and can also be a welcomed break for the optometrist who spends most of their day at the office seeing patients!

A couple of great books to help get started on the path to dividend investing are “Dividend Stocks for Dummies” and “The Dividend Mantra Way.”

What other investing topics would you like to hear more about? Let us know in the comments below!

About Syed Hussain

Syed Hussain
I work as a full time corporate OD and enjoy spending time with my family along with watching and playing basketball and football. Long time die hard Knicks and Giants fan. Also love reading, writing and talking about all things finance related. Connect with me and read my financial posts geared towards young OD's at thebrokeprofessional.com.

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