Replacing Business Ownership Income with Dividend-paying Investments

February 14, 2020 - 5 minutes read

Will Selling Your Business Require Replacing Your Business Ownership Income?

Will selling your business require replacing your business ownership income? It likely depends on the selling price and how payments will be made. On January 24, we wrote about how to create investment income after selling your business. Today, we’ll specifically discuss using dividend-paying stocks to do that.

What are Dividend Stocks?

Dividend stocks are shares of companies that regularly share their earnings with shareholders . These cash payments (“distributions”) come from a company’s profits and cash flow, after any necessary interest payments and putting needed money back into the business.

Dividends usually come in one of two forms:

1. Regular Dividends: These are payments to shareholders, usually on a quarterly basis. Dividend stocks typically increase their payouts over time. Because dividends are paid out as cash, you can reinvest those dividends or choose to use the cash for living expenses.
2. Special Dividends: Typically one-time events, special dividends can be declared and paid out at any time. For instance, a company may pay special dividends after an especially profitable period or after selling a business unit, or even to take advantage of an upcoming tax policy change.

How Have Dividend Stocks Performed?

While stocks themselves have historically been the best performing asset class of all over the long term, dividend stocks have performed even better. Since 1900, the stock market at large has generated an inflation-adjusted, annualized return of 6.5%. But between 1972 and 2017, S&P 500 companies have delivered a 9.25% annualized return. This means that in addition to paying regular dividends, these stocks have also increased in value. As a result, it is easy to see why savvy investors like dividend-paying stocks. They generate long-term returns close to 10%, and tend to grow their dividend payouts.

Replacing Business Ownership Income with Dividend-paying Stocks

Selecting the right allocation of dividend-paying stocks to replace business ownership income should be a very custom process. So, you will want to discuss it with a registered, fee-based investment advisor. Such an individual can serve you as a fiduciary (someone who is required by law to put your interests above their own). When you work with someone who you know has your best interests in mind, you can safely discuss:

• Your existing income streams (or future income streams)
• Any current investments
• Your lifestyle preferences
• Your health (and how it may drive your out-of-pocket medical expenses)
• How long you expect retirement to last
• Your risk tolerance

So many successful business owners have succeeded because they listened to their hearts and followed their gut feelings. It might be difficult to trust others to help you. But you owe it to yourself to talk with a professional if you are replacing business ownership income.

Want to Talk About It?

If you are beginning to think about selling your business (or have already sold your business), let’s talk. As fee-only, Registered Investment Advisors, we can provide valuable strategic advice and help you create investment income.

To learn more, click here to download our free eBook “The 3 Questions You Should Ask an Investment Advisor Before You Sell Your Business”.

 

 

 

 

 

 

 

Anatoliy Cherevach is a Chartered Financial Analyst and a Portfolio Manager with Kunath Karren Rinne & Atkin, LLC, with over 19 years of portfolio management and security analysis experience. Prior to joining KKRA, he was a Portfolio Manager and Research Analyst with Cohen & Steers. Anatoliy holds an MBA in finance from Pacific Lutheran University. He is an active member of the CFA Institute and CFA Society Seattle.

 

 

 

 

Tags: growing your money, kkra, Selling Your Business