A dividend yield, otherwise known as a “Yield Shield” shows a yearly dividend amount. Most companies do
not reduce their dividend rate, thereby you can realistically count on your dividend year after year.
What is a dividend yeild?
Dividend yield is a financial ratio that measures the amount of annual dividends paid by a company relative to its stock price. It is expressed as a percentage and is calculated by dividing the annual dividend per share by the current stock price per share. The dividend yield provides an estimate of the income an investor can expect to receive from an investment in the company’s stock and is often used as a key factor in stock investment decisions. It is important to note that the dividend yield can change over time as the stock price and/or dividend payouts change.
What is a dividend yield shield?
The term “dividend yield shield” is not a widely recognized financial term. This can be achieved through the use of options or other financial instruments. However, it’s important to note that these strategies are not foolproof and can involve significant risk. It’s always best to consult with a financial professional before implementing any investment strategy.
Where did I get the term yield shield?
In the book “Quit Like a Millionaire” by Kristy Shen, she talks about how she didn’t grow up with much. Some of her early memories were playing in medical waste dumps in rural China. Of candidates to one day retire at the ripe old age of just 31, Shen would have been an unlikely one. After her family emigrated to Canada when she was young, Shen would go on to become an engineer, working for a decade before she and her husband, Bryce Leung, built a portfolio of $1 million by saving aggressively and building up safety nets in case something went awry.
One of their more unique strategies is what Shen dubs the “yield shield.” A naturally cautious person when it comes to money, the fear of retiring as markets plummet would have potentially derailed Shen’s goals. Instead, they invest primarily in index exchange traded funds (ETF). These tools provide what’s referred to as yield, which in an equity ETF is the dividends paid by the companies the ETF invests in. This yield pays out whether the market falls or rises, assuming all companies don’t suddenly cease giving dividends.
Typically, when accumulating funds, you would reinvest this yield, and never see it. Now retired, Shen instead uses this yield as income. Through the yield and other dividends, they can earn $78,750 a year tax free as a couple (you’re not taxed on long-term capital gains or qualified dividends unless you surpass that mark).
Since they typically spend just $40,000 a year while traveling to exotic places across the world, they’ve been able to increase their portfolio by $300,000 since retiring in 2015.