My portfolio now consists of 30 stocks and is generating around $300/month in passive income. It’s not much but it’s enough to knock out one major bill here and there. Factoring in capital gains, the portfolio earns about $1000/month on average. The dividend strategy is working, but I’ve been looking into ways to accelerate the grind towards financial freedom. More specifically I’ve been exploring the idea of acquiring a small commercial vending business. The business is stable, but it still carries considerably more risk than any of my stock positions. However, after all taxes and expenses, it’s like earning a 40% dividend.
We’re all familiar with vending machines. You pay $1.00 for a bag of chips or a can of soda in a captive environment. This might be in a hospital, factory, or office complex. To waive the convenience, customers can drive to the grocery store and pay 30 cents/unit. At my current job I already sell a wide variety of industrial vending machines that vend products like gloves, safety glasses, earplugs, abrasive wheels, and much more. In any vending program the supplier tracks inventory, provides product, and engages in dialogue with the customer(s). The supplier makes the customer happy by conveniently providing the right product(s) at exactly the right time.
In this case, I’ve come across a deal to invest $32,000 and earn about $800/month. This amount is after all expenses and taxes. However, this carries an opportunity cost with regards to dividend investing. For instance, is it better to diversify $32,000 across several global companies or one vending contract? The vending deal provides nearly quadruple the return but carries significant risk. What if the customer decides to pull the machines? What if they’re lemons and break a month in? Even if the business succeeds it’s not truly passive income. Dividend stocks pay out as we sleep. With vending, the machines to be refilled biweekly and regular maintenance is needed.
It’s a good idea to think about these opportunities. Increasing one’s income provides additional resources to invest. And yes, in my case, I have a solid background in vending already. There may be business you too could start based on your core competencies. However, the SBA estimates 50% of new businesses fail in the first 5 years. Investing in solid dividend paying stocks has nowhere near that failure rate! So, what do you think? Is it better to take the chance, start a business, and maybe become financially independent sooner? Or is it better to stay the course, invest in dividend stocks, and earn money 100% passively?