Annual Dividend of 2.4 Million Revealing Ironclad Stock Combinations for Earning with Dividend Stock Investments Using the New NISA
“If you invest with the goal of increasing your dividend by 10-15% each year, it is quite realistic to ultimately receive an annual dividend of 2.4 million yen. I consider this the ideal realm of dividend stock investing.”
This is said by Dividend Taro, a private investor with over 150,000 followers on X. In his recent book The Ultimate Stock Investment for Receiving an Annual Dividend of 2.4 Million Yen (Cross Media Publishing), he reveals strategies for beginners based on his own success experience. Dividend Taro says, “The first thing to pay attention to is the new NISA system introduced this year.” (All comments within quotation marks are from Dividend Taro)
“Stocks purchased with the old NISA framework had a deadline, with a 5-year non-taxable benefit being one goal. However, the growth investment framework of the new NISA is now unlimited, so you can continue to benefit from the exemption of about 20% tax on dividends as long as companies earn and increase their dividends. Additionally, the annual investment limit has increased from 1.2 million yen to 2.4 million yen. Regardless of whether you can invest 2.4 million yen each year, obtaining a non-taxable investment limit of 12 million yen (2.4 million yen × 5 years) over a lifetime is significant.”
In other words, within the NISA framework, dividends are now non-taxable indefinitely, creating a favorable environment for long-term dividend stock investing.
Dividend Stock Investment is Possible Even Without Being Wealthy.
Dividends are the money that companies distribute from their profits either annually or semi-annually. The amount varies depending on each company’s net profit, meaning how much they earn and their policy on returning profits to shareholders. The percentage of net profit paid out as dividends is known as the dividend payout ratio.
However, with the current dividend yields of Nikkei average-listed stocks being below 2% on average, even carefully selecting high-quality stocks will likely yield only 3% to 4%. To receive an annual dividend of 2.4 million yen, an investment capital of about 80 million yen would be required. Is this only feasible for the wealthy?
“No, it is possible. This is because solid companies tend to increase their dividends. If you invest 12 million yen with a dividend yield of 3%, you would receive 360,000 yen in dividends. If there is a 7% annual increase in dividends, it would reach 720,000 yen in 10 years. From there, reaching an annual 1 million yen in dividends will seem quite attainable.
The effect of increasing dividends is often overlooked but serves as the most powerful growth engine. For example, Mitsubishi UFJ Financial Group increased its dividends from 31 yen two periods ago to 41 yen last period, a 30% increase, and this period it has risen by 9 yen to 50 yen, achieving an increase of over 20%.
Moreover, as the dividend per share increases and the dividend yield rises, it can appear undervalued in the market. Market principles will then likely push up the stock price. As a result, both dividends and assets will grow. Initially, focusing on your own capital and buying more shares can help you benefit from dividend increases more quickly. Reinvesting the dividends received can further accelerate your progress toward your goals.”
To ultimately aim for a portfolio where dividends alone provide ample income, Dividend Taro proposes a goal of increasing annual dividends by 10-15% annually over the long term. So, how should one narrow down investment targets?
“Fundamentally, it’s important to invest in companies with earning power. I had painful experiences during the Lehman Shock, so I invested in companies that continued to earn even amidst severe yen appreciation and global economic downturns. Specifically, I focus on industries less affected by market conditions, such as finance, insurance, and telecommunications, as well as industries with strong foundations like trading companies.
I aim to invest in top-tier companies within these industries, those with market capitalizations exceeding 1 trillion yen. From there, I expand my view and invest based on past earnings per share and dividend growth. Even now, I am increasing the number of shares of my main holdings, and my core investment strategy remains unchanged.”
As a specific recommendation for stock picks, Dividend Taro shared a model case.
“I’ll introduce a model for achieving an annual dividend of 120,000 yen, which I call the ‘Four Heavenly Kings.’ The stocks are Mitsubishi Corporation, Mitsubishi UFJ Financial Group, Tokio Marine Holdings, and KDDI.
Each of these companies is solid within its industry and continues to sustainably grow in both profit and dividends. If you can invest all at once, that’s great, but it’s also fine to start by investing around 1 million yen and aiming for an annual dividend of 30,000 yen. Over 3 to 4 years, at a manageable pace, invest about 1 million yen each year to build a foundation where money generates more money.
It’s important to invest in companies you trust, so avoid investing in too many stocks beyond your expertise, which could lead to neglected oversight. Focus on a manageable number of key stocks, around 5 to 10, and becoming knowledgeable about the industry will be an asset for the future.”
Major Stocks Were Undamaged Even During the Pandemic.
This is merely a guideline, and you should adjust it according to your own strategy and budget. So, when it comes to purchasing your target stocks, how should you assess the stock price levels?
“When considering dividend stock investments, the dividend yield is the first thing people usually look at. In the past year or so, dividend stock investing has become more mainstream, and companies have been actively showing a return-on-investment attitude, leading to preemptive buying and a reduction in yields. For high-quality companies, a yield around 3% can be considered a baseline, whether it’s high or low. If the yield exceeds this level, it might be due to the stock being overlooked due to lack of popularity. Conversely, if it’s below this level, it could indicate that the stock is being bought due to expectations of future performance, reflecting potential overheating in the stock price.”
It’s important to note that simply choosing high-dividend-ranked stocks is not sufficient. Some companies may offer high dividends without growing their profits, which poses risks of stock price declines, dividend cuts, or suspension in the future.
“If a high-quality company’s dividend yield is excessively high or if you select companies based solely on high yields, you can reduce the risk of failures such as consecutive dividend cuts or suspensions. In fact, even during the COVID-19 pandemic, my main stocks faced no issues. The dividends increased smoothly compared to the previous period and have never been lower than the previous year.”
However, with recent financial pressures due to global and Japanese interest rate differentials, inflation from rising raw material and labor costs, and the current tough household budgets, is it sufficient to focus only on the Japanese market?
“If you live in Japan, you’re most familiar with Japanese companies and can quickly digest news about them if something happens. Investing in Japanese companies that earn abroad benefits from a weaker yen and provides a form of currency hedge. For example, investing in international companies like Toyota can effectively mitigate risk. Therefore, while I focus mainly on Japanese stocks, I also invest broadly and shallowly in U.S. stock indices.”
Despite the difficulty of reaching your goals due to the required experience and knowledge, Dividend Taro says it ultimately comes down to belief.
“Don’t worry about daily stock price fluctuations. The basic approach is to buy the stocks you’ve decided on when you have the money. At a minimum, keep an eye on quarterly earnings reports and investor relations information. It’s more meaningful to focus on your personal life and work rather than getting stressed out by daily stock price movements.
In the end, if you can trust the companies, you can hold onto your investments even through economic turbulence. I call this the ‘gorilla grip.’ Therefore, you don’t need to worry excessively about the purchase price. If the stock is surging daily, it’s enough to check if it’s extremely overpriced by taking a brief pause or evaluating the situation.”
Although he has already built a solid portfolio, surprisingly, he has no intention of consolidating his gains.
“I intend to pass on my stocks to the next generation regardless of what happens to them. Since I view it as a long-term investment, I have no plans to realize unrealized gains. I consider stocks and real estate as assets to be increased, and there’s no need to sell something that generates money and reduce it easily. Unless I sense an extreme risk in the global economy or a government emerges that threatens my assets, I don’t plan to change my stance.”
It may now be a missed opportunity just to keep money in the bank. Perhaps you should also consider aiming for your ideal world through dividend stock investing.
Profile： Taro Kaitoh
Investor. He started investing in stocks when he was a student, and after the Lehman Shock, he turned his attention to dividend stock investing. He invests mainly in large-cap stocks, and 90% of his holdings are dividend stocks with increasing dividends. He is constantly posting information on dividend stock investing. He is also the author of the book "The Largest Stock Investments That Bring in 1 Million Yen a Year in Dividends.
