Why investing in dividend paying stocks is good?
When it comes to direct stock ownerships, a high dividends paying stock will always be better than growth stocks that did not pay much if any dividends, though supposedly got higher rate of price appreciations than dividend paying stocks.
Here are some main reasons why investing for dividends is good,
1. Dividends allows investors to attain positive returns even in a bear market.
2. Dividends allows investors to further do well in investment returns when bull market return.
3. By virtue of the above two points, a dividend paying stock lowers the risk of investing. This is reflected in the lower volatility in the stock prices. If you observed close enough, dividend paying stocks falls much lesser than the whole equity market.
4. Capital gain need to realize before one can reinvest for compounding returns, but a consistent dividend paying stock means that dividends received can be reinvested for compounded gains. In addition, got pay dividends do not mean that the company does not grow. There is still capital appreciation in the long run as more investors are attracted to stocks that pay dividends.
5. Consistent dividend paying stocks usually got consistent positive cash flows and the good news is, their dividends are usually inflation adjusted.
6. Dividends provide a steady income stream. Nothing is better than stability in receiving income, would you want to spend your life watching stock tickers or spend your life watching porn, watching Manchester United vs Liverpool and wait for the dividends payments to arrive?
7. Dividends stocks tend to rise in value after a bubble over a hype is burse like the late 90s technology stocks bubble. This is simply because investors cash out from dividends paying stocks to buy heavily into these so called high growth companies. Based on data from Thomson financial datastream, at least on average the highest dividend yielding stocks fell around 14.2% compared to those with no dividend yield that fall as much as 31%. This is measured in the bear market from 2000 to 2002 from S&P500 companies.
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The problem with investing only for dividends is that a company doesn’t always declare them. If an investor is going to invest only for dividends then I recommend they find out how often dividends were declared by looking at the financial statements of the company. I personally use a different strategy for picking stocks. In addition to looking at the financial standing of the company, I like to pick stocks of companies that have a product I am passionate about. For example, I am looking at a stock in a company called Mentor Capital because they have a 20% interest in Quantum Immunologics (QI), a privately held bio technology company with FDA approved clinical trials on the way for an innovative new breast cancer treatment. Because I have a passion for the progression of breast cancer treatment, investing in this stock is a pleasure and something I can be excited about.