When you buy computer software, especially games, there’s a minimum PC requirements and recommended requirements.

We quickly learn that it’ best to ignore the minimum PC requirements…

If a person wishes to have a dividend income of $50,000 per year starting this year (notice I omitted the word passive), I guess the recommended capital would be $2 million dollars at 5% yield.

Wait!? My math don’t add up you may say.    

Let’s park this question for now and explore other alternatives:

1) $1 million at 5% yield

This will get you the $50,000 per year you so desired. But the price to pay is you are 100% all-in. No opportunity fund or dry gunpowder. No ballast.

That means you have lived through the May 2013 taper tantrum where have experienced how income stocks all got whacked in the head – some more than others. And you totally OK with the temporary capital loss. You are confident that your income stocks will recover eventually – like it did currently now. You speak with conviction as you have lived through that experience. You know what you are doing.

I would rate this strategy as minimum requirement to get $50,000 dividend income per year. 

2) $500K at 10% yield

That’s obvious isn’t it? And that’s what newbie income “investors” normally chooses.

This stock is yielding 4% but this one one is yielding 8%… Buy the 8% one! Easy!

If only they stop and reflect for a while why they are the only “smart” ones who can spot it. I mean why other investors are bidding the price up for that 4% dividend stock and not biting on the one which is yielding at 8%??? Don’t other investors (especially the institutional ones) know math?

These newbies have probably not gone through May 2013 taper tantrum, never mind to have experience what it means that hell hath no fury like an income investor scorned – like during 2008/09.

How to spot these newbie income investors?

Just ask 2 questions and you’ll know:

  1. a) What’s the dividend payout ratio?
  2. b) What’s the dividend growth rate for the past 5 and/or 10 years?

You’ll soon realise they are not income investors but yield hogs from the blank stares you’ve got…

It’s the equivalent of a newbie trader who jumps into the market using 10:1 leverage and have no clue what is risk management!!!???

No, $500K at 10% yield is not a strategy; its a train wreck waiting to happen… 

$2 million at 5% yield for $50K 

I guess some of you have figured what it means and why it’s recommended – starting this year.

For those who haven’t figure it out, no worries. You will in due time. It will just cost you some money but trust me, that’s how we remember what not to do in the future!


Singapore Man of Leisure (welcome to my blog; just google it!)