Dividend stocks have come to the forefront in the last few years after the drop in interest rates from the Fed. Investors hungry for yield have rushed to dividend stocks, and rightly so, as a source of income. This list points out the best reasons to hold dividend stocks in your portfolio.
1. Investing vs. Trading: Staying invested in great companies provides you with income as opposed to growth focused stocks where you need to sell and exit the investment to realize any profit. The buy-low-sell-high mantra needs great timing to succeed, which has been proven extremely hard to pull-off even by professional investors.
2. Passive Income: Dividends can provide investors who want to achieve financial independence with an income stream. If your nest egg is big enough, you can retire on the passive income generated through dividend stocks.
3. Stability: Corporations that pay dividends are established companies with proven record and have reliable revenues year after year. Unless the company faces a disastrous situations where their core business is at risk, dividend paying stocks are more stable and follow more predictable patterns over time.
4. Resilience: In recessionary times, dividend stocks tend to perform better. A company that can maintain to pay its dividends through rough times demonstrates the quality of its business. These companies are bottom bound with better financial fundamentals.
5. Feedback: Once dividends are paid out, they are yours. They are not empty promises or financial trickery where numbers can be cooked and you have to take a company’s word for it. This gives the investors assurance that the company is really generating the profits that it claims to have.
6. Inflation: Inflation eats into a saver’s coffers. Dividend growth stocks increase their payouts year after year beating the inflation rate enabling your funds to grow with better returns.
7. Compounding: Investing in dividend stocks allows you all of the above and when the dividends are reinvested and grown over a number of years, the compounding effect can be truly staggering. Time is one of the biggest factors when it comes to taking an advantage of the compounding effect.
What are your thoughts on dividend investing? Have I missed anything else? Leave a comment.