A lot of people dream of starting their own business. In some cases, they do and are wildly successful. But a lot of people find that the entrepreneurial life ends up costing rather than making them money.
In fact, that is one reason lots of people, including me, buy dividend shares. They can offer me some of the financial benefits potentially associated with starting a business, without some of the hassles.
Everyone’s situation is different. But here are three possible advantages I see for myself in buying dividend shares rather than starting my own business.
Short-term cash flows
Some businesses make money from day one. But a lot do not. In fact, many start up businesses drain cash for years.
That can be true for companies listed on the stock exchange, too. Deliveroo, for example, saw almost a quarter of a billion pounds more cash go out the door than come in last year. Unsurprisingly, it does not pay a dividend.
But a lot of well-established listed companies are highly profitable. Dividends are never guaranteed, but many businesses have paid them for decades and look set to keep paying in future. Take my shareholding in British American Tobacco, for example. It pays a quarterly dividend and has done so since last century.
If I had a spare few thousand pounds and put it into setting up a business today, it could be months or years before it generated cash for me (if it ever did). But if I put that money into a selection of carefully chosen dividend shares, I could hopefully start earning money from it in a matter of months.
Expertise and reach
Setting up a successful business requires more than just a good idea. A range of skills are involved – and usually to make things work over the long term, a business needs a competitive advantage.
Maybe I want to set up a company making soap. But firms like Unilever and PZ Cussons are already expert at it, with a range of business professionals to make things tick over smoothly. Or I might want to set up a bakery – but then again, Greggs already has a far deeper expertise in baking than I am ever likely to have. In such cases, should I try and figure out my own competitive advantage or simply piggyback on an existing one?
That does not mean I could not set up my own company and enjoy commercial success. But if a large company already has the proven ability to make money from an idea like my own, rather than try and do it myself, I could simply invest in such firms, sit back and hope to benefit from their success.
Dividend shares and liquidity
If a company in which I invest does differently to how I expect, or I change my investing approach, I can sell the shares. I could sell my shares in British American Tobacco and reinvest the money in a different company in a matter of minutes.
Setting up my own business would take time. If I changed my mind, I would probably not be able to sell it in a few minutes, like I can with the dividend shares in my portfolio.
