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From Zero Dividends to $10,000 per month in dividends: How Long Does it Take?

Irving Soh
Irving Soh
  • The short answer is about 10 years.
  • Sample strategy highlighted below
  • Edge in the markets lies in an individual’s discipline, emotionally and financially, as well as consistency.
  • I’ll go over why we use 10 years as a timeframe, and the rough amounts of money we’re working with to show you how.
  • But first, let’s dispel some common questions.

To begin with why I am writing this piece, I must first explain its genesis.

It begun when we showed the dividend records of Christopher Ng Wai Chung, our Early Retirement Masterclass trainer.

(Dividend statements (Unleveraged) – July 2018, $11,612.89)
(Dividend statements (Unleveraged) – June 2018, $7,223.88)

Obviously, this set some tongues wagging.

  • First, what are his more updated returns (2019)?
  • Second, doesn’t it require massive amounts of capital to generate such month to month dividends?

The answer to the first qns is embedded here. Note it shows an unleveraged amount. If leveraged, dividends received is doubled.

And the answer to the 2nd questions is a firm and resounding YES.

It takes millions of dollars to generate tens of thousands a month. Or in the above case with leveraged yields, it takes about $677,000.

Which brings me to the next question on your minds.

Are you nuts? Do you think I have that much money lying around?

First off, hold up here.

I’ve never ever mentioned that you’re going to be able to do this right off the bat. We have always been consistent in telling people that you need to be able to “tahan” 8-10 years of dividend investing.

That means you need to be able to last about a decade without touching your dividends pouring out from your portfolio. Every dollar must go back into the portfolio so you can kickstart the compound snowball.

What? Did you think you could just randomly sit around and all of a sudden have $10k pouring into your account every month because you applied some secret kungfu sauce to the stock markets?

I’d expect Singaporeans to know better – we’re too street smart for that shit.

But is it all bad news?

No. Not really.

10 years isn’t really that long.

No. I know you’re blinking and calling me nuts. But think back 10 years ago from now.

Where were you?

Are you better off now vs 10 years ago?

For me, my circumstances ten years ago is something I can remember very clearly – I was a broke ass student working two jobs trying to desperately to stay afloat.

But asides from the clarity with which I can remember my past, I also clearly feel that the past 10 years feels…like it passed in the blink of an eye.

It felt fast.

Really, freaking, mildly panic inducing fast.

Our very human minds, you see, are not made to be able to think far out.

Few among us envision things that way. But when we look back, we see much more clearly.

We’re able to see with much greater clarity in hindsight where we are, what we’ve done, how we go here.

There is a reason hindsight is 20/20.

The question therefore, at this point, is what do you want to do now to change where you are ten years from now.

I'm very willing to bet ten years ago, all of you would have bloody done almost anything to be able to have $60,000(unleveraged) - $120,000 (leveraged) of money coming into your bank account every year. 

If I walked back in time and offered you a strategy, an approach that you had to take for the next decade to reach this goal, of hitting $60k-$120k a year, I can bet 8-9 out of every 10 people would have taken it.

So why aren’t they taking it now? Blame the human psyche. Blame the lack forward thinking. Blame whatever you want to blame.

All I know is, 10 years from now, I don’t want to look back and wish I’d done something different. Ten years from now, I don’t want to regret that I could’ve done something different.

So what’s the strategy?

This is just one sample strategy in its raw form that we refined much more for the Early Retirement Masterclass.

  1. Market capitalisation $50m and above. This is to ensure sufficient shares are on the market and ready for purchase. All the analysis in the world will not save you from being unable to invest your money. 
  2. Stock must fall into the bottom 50% of Price to Sales Ratio. This metric measures price against the sales of a company. Basically, the less you pay the better it is. Which is why we only invest in the cheaper half of price to sales ratio. 
  3. Stock must fall into the bottom 50% of Price to Free Cash Flow Ratio. This metric measures price to free cash flow. Free cash flow can be viewed as a company’s true earnings since it’s spare cash a company has after paying for capital expenditures.  
  4. Stock must fall into the top 50% of Dividend Yield paying companies. Since we’re chasing yields, this criteria allows us to target companies that actually fall into the top 50% of dividend yield paying companies. The system does this by ranking all of the stocks and then we buy the top half. 
  5. Stock must have free cash flow yield above dividend yield as of latest year’s financial filings. We do not want unsustainable dividend yields. Ideally, we can smooth this out into 5-10 year time frames. But I’m still figuring out the right way to do this on Bloomberg so give me some time. As of not, we ensure that in the latest financial year, management was not irrational with its money in giving out more than they should to keep shareholders happy only to have a higher chance of delivering the same dividends the following year. I have written extensively on how free cash flow yield can destroy dividend investments in this article. Do read it if you’re interested in yield stocks so that you can understand the significant and power behind free cash flow and dividend yield. 
  6. Portfolio is rebalanced once a year in June. The rebalancing process is simple. Each year, at the same time, we use Bloomberg to provide a list of stocks which has passed our criteria. Stocks that no longer pass the criteria are sold. Stocks that pass the criteria are bought. At the end of the day, we want to have equal positions in each stock. That means if you have $100,000 and 10 stocks to buy into, the end result must be $10,000 in each stock. 
  • Use back tested strategies that have been shown to outperform the markets over rolling 3 year, 5 year, 10 year, 20 year time frames.
  • Stick to them by investing regularly.
  • Don’t eat your dividends for the first decade of investing.

Are these all numbers?

NO. We have actual results right NOW.

Note that 15.73% is unleveraged. Because we can squeeze risk to a smaller value, and because we have lower beta, we can afford to leverage our portfolio to twice its size and reap higher returns.

In other words, leveraged, our real returns are actually 27.96% for the year 2019. Far outpacing the STI’s 9.4% in 2019.

If we take this at face value, in 10 years, you will have

At 9% yields, for $1,294,495.61, you will have $116,504.60 per year in dividends or about $9,708 per month.

Not quite $10k but close. Add another year and you’re probably there.

But what does this look like if we adjust to a more conservative value, of say, 20% a year, for the next 10 years, with a starting capital of $20k, and injecting $2k extra every month as you receive your salary?

At $812, 456.74, and at 9% yields (our current leveraged portfolio yields) , that’s $73,121 a year. Or about $6k a month.

Can we always perform at 20% a year?

I don’t think so. But I’ve shaved down from 27.96% in the past year.

What if we assume a worst case scenario and do only 15% even after leverage?

Ok. That’s $606,947.53.

9% yields = $54,625.27, or about $4,552 per month.

More than enough for most people to quit their jobs.

I’ll plainly state it here. Strategies exists.

They exist for the average retail investor to do well.

  • So why have most people failed?
  • Why have active fund managers underperformed the markets?
  • Why have most people failed to produce good outcomes from investing in the markets?

The two biggest reason most investors fail is because;

  1. They’re arrogant. They think they know better than most when they don’t know anything. So, they try to do “stock picking” instead of following a strict model and systematic process. In the process, they underperform by a huge margin.
  2. They’re ill disciplined. Most people can’t even carry on going to the gym once a week. Much less the whole year. Expecting them to do so for a whole decade is a monstrous task. Most people fail here as well because they simply fail to hone dividend investing as a habit. OR they start consuming dividends and stop reinvesting the amounts received. They stop short of every truly reaching

In other words, people fail because they allow their very human tendencies to fail them.

People fail because they’re not disciplined. People fail because they’re approaching a topic or area without research. They don’t do their homework.

This behaviour – I will be candid – confused the crap out of me.

Most of you reading this would:

  • Never buy a phone without researching it
  • Never save $10k to go on a trip without planning it
  • Never buy a house without thoroughly deciding cashflow, future developments, and nearby amenities as well as taxes and other concerns,
  • Never fail to look both ways before crossing the road
  • Never approach a project with insufficient budget
  • Never get a subscription they don’t actively routinely use
  • Never buy a book they don’t finish

For a while…I couldn’t figure it out.

I just…couldn’t.

But then I stopped having expectations of people and decided to piece together what I was looking at in real life.

The above is what i thought was true.

It turns out, in fact, that most people actually do

  • Buy phones without researching its full capabilities, and after buying them, never ever use it to its full capabilities
  • Save $10k, fly to Japan, and go wherever they want on a whim, resulting in a far less efficient and enjoyable travel time
  • Buy a house without being sure they can pay for it over the next 10-15 years.
  • Rather look at their phones and cross with the herd of people in front of them versus look at the street both ways themselves
  • Would approach a project without sufficient budget (building a small robot, coding some software, carving a desk, you name it, I’ve heard it)
  • Have subscriptions they don’t actively, routinely use
  • Buy books and leave them unfinished

So, you see, having an edge in the markets, isn’t about smarts.

Edges exist in the markets because most people are inconsistent, ill-disciplined, and fail to adapt their behaviour for the long haul. This explains why a majority of the people will never ever achieve investment greatness in their lives. And not because they weren’t smart enough or fast enough or lacked the advantage, or lacked something, but because most people in the course of their lives, alone, in a vacuum will never be able to adjust their behaviour to a positive skew.

In short, sensible, non-emotional,

Our Early Retirement Masterclass is meant to adjust that. We provide the strategy. The details. The know-how. Yes. We do have all of that.

But a one time stop gap measure of knowledge isn’t going to help people adjust their behavior for the long haul.

A tribe of similar minded individuals who care about their own wealth will help you adjust your behaviour. If you’re in a group of people who care everyday about their wealth, you will too.

That is the real value of our course.