What if I had $5000 to invest in the stock market? What if I was just starting out, all over again, and wanted to invest my first $5000 in stocks? Today’s video discusses this very hypothetical question, from a dividend growth investing perspective. Learn how I would personally invest five thousand dollars for passive income and cash flow.
In particular, I would:
(1) Buy three stocks, with roughly equal investments in each. Focus on three sectors: consumer non-cyclical food and beverage, consumer non-cyclical household products, and healthcare (pharmaceutical, medical devices, and household products). I love these sectors for the long-term because everyone needs these items in both good and bad economies.
(2) Leverage dividend reinvestment plans (or DRIPs) for at least two of the three stocks. Open a low-cost brokerage account with dividend reinvestment for the third stock, if a no fee (or low fee) DRIP did not exist.
(3) Make lump sum investments, however stagger my investments one month at a time. It would take three total months to deploy my $5000 in the stock market.
(4) Reinvest all dividends, compounding my passive income portfolio over time. (Eventually, I would not reinvest dividends and would live off the cash flow. In the short and medium-term, however, I would reinvest dividends to fuel portfolio growth.)
(5) Make periodic, ongoing investments. Since I would own three stocks, I would allocate capital to the one that has the most favorable valuation at the time of my purchase.
(6) Focus on blue chip stocks with international exposure (including India and Africa).
(7) Strive to purchase stocks with a long history of 7% year-over-year dividend growth.
(8) Focus on stocks with payout ratios in the 50% range.
(9) Focus on stocks with a starting yield in the 3% range (although anywhere from 2.0%-3.25% should do just fine).
Let’s assume for minute that I don’t care about capital appreciation and these three stocks go nowhere over the next 30 years. Let’s also assume I don’t reinvest dividends (although that is not true). From a conservative modeling standpoint, my yield on cost would be 23% after 30 years. Meaning: I would receive $1,150 in dividend income each year for the rest of my life. That’s a nice stream of cash flow for my $5000 initial investment. And, that’s a really conservative model (in my opinion).
Today’s video highlights the power and beauty of dividend growth investing. Starting with just $5000 is a solid foundation and a great way to begin one’s dividend stock journey.
Please note that today’s video builds on my last video about investing your first $1000:
If you’re researching stock brokers for dividend growth investing, you may want to check out this recent video:
Disclaimer: I’m not a licensed investment advisor, and today’s video is just for entertainment and fun. This video is NOT investment advice. Please talk to your licensed investment advisor before making any financial decisions.