7 Reasons to Own Dividend Stocks

Dividend Growth Investing
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.

10 thoughts on “7 Reasons to Own Dividend Stocks

  1. Dividends are a great way to generate true passive income. Completely hands off and accessible to anyone (you don’t need a ton of capital to get started) are what I like best. Unlike rentals, stocks (dividends) are also very liquid.

  2. Excellent list of reasons many investors (including myself) have turned to dividend/income investing the past few years. I would also argue that the great recession played a major role. Just a few years ago our accounts were a sea of red; focusing on the income side of the equation happens to be a steadier and more predictable path. Anyways I think dividends stocks are a great way to build wealth although other strategies have been proven to work as well.

    Best wishes!

    • You said it, Compounding Income. Dividend stocks are definitely a good strategy for the patient investors.

      Thanks for stopping by and commenting. Appreciate you engaging in the conversation. Cheers.

  3. Nice list, and exactly why I am creating a portfolio of DG stocks. While I have many other investments, it will be great to see how my DG investments perform, and the passive income I can build through that portfolio.

    • Thanks for stopping by and the complement, writing2reality.

      You have a great diversification for your passive income sources, which I am hoping to explore more in the future. I managed to add two sources this year which is great, but need to figure out what other sources I can add.

  4. Great list Sabeel. Investing vs. Trading is a great way to phrase it. I instantly fell in love with dividends when I realized it was a way I could actually monitor growth and progress. Unrealized gains are meaningless until you cash out and as a long term investor that’s a frustrating feeling …. not really knowing what you are going to have when it comes time to sell.

    • Exactly my thoughts, Devin. I knew that I was not a good timer of the market and the more I started trading the more I realized that it was not working for me. Slowly and surely, I realized the power of dividends and the magic of doing nothing and making a profit.


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