Warren Buffett is one of the greatest investors the world has ever seen.
Per Forbes, his net worth is just under $90 billion. And that’s after giving away billions of dollars to charity. He built that net worth purely through investing. Buffett used investing as a platform to grow his wealth to stratospheric heights. He eventually put himself in the position to buy entire businesses via the conglomerate holding company he controls, which is Berkshire Hathaway Inc.
While mere mortal investors like you and I generally don’t have the opportunity to buy companies outright, owning even one share of a business makes you a partial owner of a business.
And one share is the pathway to 10 shares, 100 shares, 1,000 shares and so on. Those shares, by the way, often entitle you to one of the best things about being a shareholder.
Dividends.
And I’m going to show you how Warren Buffett uses dividends to make money, which can help you to make money with dividends.
A dividend is a distribution of profits by a corporation to its shareholders. If a company pays a dividend, owning its stock entitles you to receive that dividend. It entitles you to that dividend all the same as anyone else – proportionate, of course, to the number of shares you own.
Apple Inc. (AAPL), for instance, right now pays out a dividend of 20.5 cents per share, quarterly. That’s 82 cents/year per share. Warren Buffett owns a lot of Apple Inc. stock. I also own Apple in my portfolio.
However, Buffett collects a lot more dividend income from Apple than I do, because he owns many more shares than I do. But the important point here is this: We both collect a dividend from Apple. That’s the beauty of this.
Apple is actually Buffett’s largest position in the common stock portfolio he manages inside of Berkshire Hathaway.
Berkshire Hathaway owns more than 944 million shares of Apple, as of the end of Q3 2020. That stake alone is worth over $129 billion, which is a significant chunk of the overall portfolio’s value of $271 billion.
Source: Warren Buffett Tracker
Technically speaking, it’s Berkshire Hathaway, not Buffett receiving these dividends. But since Buffett controls the company and their stock portfolio, and since he has 99% of his net worth tied up in Berkshire Hathaway stock, Buffett is synonymous with Berkshire Hathaway.
So how much did Warren Buffett collect in dividend income in 2019?
Just over $4.5 billion.
That’s how much the common stock portfolio within Berkshire Hathaway collected in dividends throughout 2019. And that $4.5 billion can be used to reinvest back into the portfolio, buying even more stock, which – you guessed it – will pay out even more dividends.
Plus, these dividends are often growing organically, all by themselves. That’s because Warren Buffett often invests in the same high-quality dividend growth stocks that I make videos on and personally invest in.
The businesses that Berkshire Hathaway buys stock in are usually increasing the amount of their dividends, year in and year out. Using Apple again, they’ve increased their dividend for the last nine consecutive years. Reinvesting growing dividends back into more growing dividends is a classic Buffett move. Organic dividend growth can be turbocharged by dividend reinvestment.
This creates a snowball of unstoppable wealth and passive income. It’s no accident that Buffett’s biography is titled The Snowball.
So how did Warren Buffett get in this position?
Well, put very simply, he bought stocks. A lot of stocks. Over and over again. And he held these stocks for very long periods of time. Now, he’s historically had access to much, much more capital than regular investors. But this can be scaled way down to match our needs.
Using dividends to make money isn’t something that Buffett has a patent on. Anyone can do this.
The method is building and owning a collection of high-quality dividend growth stocks as part of a diversified portfolio. Reinvest growing dividends back into the portfolio. Let stock buy more stock. Create a self-propelled snowball of wealth and passive income that grows ever-larger.
This method can be replicated by anyone. Indeed, I own over 100 dividend growth stocks in my own portfolio. And this portfolio generates enough five-figure passive dividend income for me to live off of.
Sure, I’m not a billionaire. Not even close. But I don’t need to be.
I’m retired in my 30s and living the life of my dreams because dividends pay for my bills. I get to wake up and do what I want, when I want, where I want, why I want, with whom I want. I’m able to do this because I make money from dividends while I sleep.
Buffett’s using dividends to make money. And so can you. The key is to get started. Build that portfolio one share, one business at a time.
Start rolling that snowball.
Because before you know it, your snowball will start to turn into an avalanche.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.