Wanting to make money like Warren Buffet? Dividends is where it's at.

New Motivational Instagram: lee_vo93

Many investors are looking at other ways to make money and in particular Dividend investing and you’ll see this with lots of attention to videos talking about dividend investing.

I want to go into why people like to invest in dividends..
1. *The first reason is to receive a ‘guaranteed return on investment’.*
1. Now obviously there is nothing that’s guaranteed but the closer we can get the better it is. Whilst growth investing does absolutely beat dividend investing we need to understand that dividend investors like a consistent return on their investment. This guarantee return for Australians generally come biannually and is deposited into your nominated bank account, which is always nice to receive and makes up about 40-50% of the return in Australian shares. The reason why Australia has such high dividends as opposed to countries like America is because we have a lower population which equates in less growth potential for businesses. A really good example of this is in our biggest sector, banking.
2. For banks they can only repackage and provide loans in so many ways before they start doing it recklessly to those who couldn't afford it before or they hit their cap because the population isn't growing fast enough to generate demands in goods and services.
3. So instead of reinvesting into the company to generate more growth because well the market is so small, they pay it to the shareholders and it's been done so long that shareholders expect it now and to receive anything else to its contrary would make Australian shareholders quite mad and probably want to sell off their shares.
4. In contrast if we look at tech companies, none of them pay a dividend because they need all the capital to leverage against the debt they could be taking on the grow. Many of these companies aren't even profitable to pay out in dividends so instead they reinvest any source of revenue into their business to keep the growth going.

2. **They invest for income.. For many of us this is what we currently work for, a paycheque that we understand will come in weekly, fortnightly or monthly.**
1. Income investors which I’ll slowly become in the future and am working towards require a great amount of capital, (zoom) like you don't need me to do the maths to figure that out. But to invest for income, it does take awhile and to supplement this you really need to have a good income through your job or business to speed up the process. In saying that though it's really dependent on your retirement horizon, because if you're starting at 20 and keep going even at salary of $40k (adjusted for inflation) you'll be okay if you consistently invest.
2. Income investing is also for a specific lifestyle that investors are looking for because they can quantify a number to replace their paycheque and then work towards an amount of capital overtime to achieve financial freedom. The main reason for this style of investment is to buy time and have options as you get older and your life is consumed by children, keeping your health and any other liabilities that'll come about.
3. A kind of dark quote I heard from Peter Thornhill who is an advocate for only dividend investing is that as his getting older there's less baby showers and weddings and more funerals, so for him it was enjoying the fruits of his labour that his acquired through dividend investing and letting that compound.
3. **Taxation on dividends**
1. There are benefits in Australia when you receive dividends with franking credits. To briefly describe what that is, basically a company will have already paid tax on their profits which is 30% for Australian companies and because they pay you the amount after it's been taxed; you will receive tax credits to the equivalent amount. So you personally might only be paying 2.5c for every dollar you earn in a particular tax bracket because the tax credit offsets it.

4. **Dividends Compound your investments**
1. The last thing, which everyone should be doing to increase your wealth overtime. If you're spending your dividends when you're just starting to invest on discretionary purchases you're making a big mistake because you should be reinvesting it into more shares of the companies you're investing in. The dream is to have such big slices of the pie in these dividend paying businesses that you then provides you with an income that supports your lifestyle.