Investors have plenty of reasons to invest in stocks that pay dividends. In uncertain economic times, such as the one we are in, it can be very hard to find a safe and stable investment. Picking the best dividend paying stocks and adding them to an investors portfolio can provide that safe opportunity that so many are in search of.
Stocks that pay dividends have many other advantages that investors should take note of. Here are 10 more reasons investors should take a look at dividend paying stocks.
- Low Maintenance – Investing in stocks that pay dividends requires less maintenance overtime compared to other assets in an investor’s portfolio. A dividend growth investor does not worry about staying up to date with the daily movements of the market. Instead, they focus on the long term growth prospects of investments in their portfolio which requires much less maintenance.
- Less Risk – Solid dividend stocks are better equipped to handle a recession or stock market crash. Even though these types of investments are still vulnerable to a bad economy, the losses are typically much less. Smart investors take advantage of downturns in the market and add to their positions. These same investors also tend to avoid the highest dividend paying stocks as they tend to carry more risk than those with a lower yield.
- Minimal Research Required – Investors don’t need to focus on the research necessary to buy and sell stocks. Instead, they concentrate on the fundamentals of a company and its future growth prospects. The difference in the share price of a dividend stock today at $50 and tomorrow at $52 means very little 10 or 20 years from now.
- Multiple Ways to Earn – Stocks that pay dividends offer two ways to grow an investment. First, there are possible capital gains if the share price of the stock rises. This is how most investors make money in the stock market. Dividend stocks, on the other hand, also provide a steady income stream that can pay for many years to come.
- Passive Income Opportunity – Investing in high yielding stocks is a great way to build a passive income stream. Since there is little maintenance and research required once the stock is purchased, the dividend payments earned are passive in nature. Dividend payments are a great way to supplement income for retirement or even monthly expenses.
- Compounding Returns – One of the great things about high yield investments is earning compounding interest. Investors think of it as a way to put their money back to work for them. Those who invest in stocks that pay dividends have the option to reinvest their earnings into additional shares to earn even more interest over time. Most online discount brokers offered what is called a DRIP or Dividend Reinvestment Plan which automates this process.
- Solid Investment – A dividend growth stock that has a history of raising distributions and continues to has one thing many companies don’t these days – CASH. Companies that fit this model are generally well managed and have the capital required to run their operations. A dividend payment can tell a lot about the financial stability of a public company.
- Principal Does Not Decrease – When an investor decides to start using dividend payouts as part of their income (instead of reinvesting them), the principal does not decrease. Unlike any other type of investment, stock dividends have no impact on the original capital that was used. This means that if the company is well managed, an investor could assume a constant income stream without any required reinvestment.
- Yearly Raise – Dividend investors typically get a yearly raise provided they make wise investment decisions. The best dividend growth stocks continually raise their dividend payout annually. That is a great feeling to have that when a company raises their payout with no work required by the investor.
- Lower Tax Rate – Most cash dividends are taxed at a reduce rate compared to other forms of income. Reduced taxes make stocks that pay dividends an attractive investment, especially when the value of the amount of income continues to increase over many years. Investors should check with the IRS for more details on how dividends should be taxed.
Stocks that pay dividends have several advantages over any other investment available today. Whether investors are looking for a safe and secure place to put their money or building a long term income stream – dividend stocks have plenty to offer.