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Federal minimum wage is $7.25 per hour. In many states, that’s the least a company can legally pay you. However, many “gig economy” and “side hustle” platforms have found ways to circumvent this and pay even less.
You’ve probably seen the statistic that no full-time worker earning minimum wage can afford a two-bedroom rental in any state or county in the USA.
For fun, today’s article compares the difference between earning federal minimum wage from a job versus generating the same amount through qualified dividend income.
A full-time employee earning federal minimum wage would make about $15,080 per year.
This is pre-tax. After taxes, employees take home around $13,900. This can vary by employment status (W-2 employee vs. 1099 contractor), state, or even county, but the worker is going to lose some money to taxes.
Meanwhile, an investor earning $15,080 per year in qualified dividend income could potentially pay a tax rate of zero.
At the moment, there is a 0% tax rate on qualified dividends for single filers with taxable income up to $49,450 and married couples filing jointly up to $98,900. This could change in the future, but investors currently enjoy a tax advantage on qualified dividend income. Even higher-income earners making up to $533,400 as single filers and $600,050 as joint filers only pay a 15% tax rate on qualified dividend income.
Earning the equivalent of federal minimum wage through dividend income also carries the benefit that your $15,080 per year is time-independent. You don’t have to work in the Coca-Cola factory to receive Coca-Cola dividends, so you can potentially focus your time and energy on your career or business while collecting passive income from investments.
Dividend investing also gives you a nest egg of capital from which you receive payouts.
In an absolute financial emergency, you could borrow against your holdings or sell covered calls or put options to cover the expense.
Someone solely dependent on a job for income doesn’t have assets to fall back on.
Pointing out that minimum wage isn’t a sustainable income isn’t exactly groundbreaking. However, many dividend critics claim that you need tens of millions of dollars to live a “comfortable” life off investments.
In reality, a $500,000 portfolio yielding 3.1% would pay more than an annual minimum wage salary at $15,500. Depending on your income level, and whether all the payments came from qualified dividends, you’d also have a high likelihood of paying little to no taxes on that money. On top of this, you’d still have your nest egg of principal. And, assuming you aren’t retiring tomorrow, you can always reinvest your dividends while continuing to contribute more to your portfolio.
Lastly, this doesn’t account for capital gains or dividend raises, a major exclusion since many blue-chip companies hike their payouts every year.
Earning $15,500 per year in dividend income shouldn’t be the end goal, but buying and holding quality income-producing assets carries advantages that most people aren’t aware of.
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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.
