Advantages of Dividend Stocks
Dividend Stocks are popular with many investors for a reason. Personally I usually do not invest in Stocks that do not pay a dividend. If you are retired you have a very good reason to invest in Dividend Stocks – for the Income. Most Dividend Stocks pay the Dividends on a quarterly basis ( 4 times per year) but some pay the Dividends on a monthly basis, Semi annual basis or even an annual basis. I prefer the stocks that pay quarterly or monthly. A good number of stocks not only pay a dividend but they raise the dividend regularly (usually annually). Here is my list of reason I believe so strongly in the power of Dividend Stocks:
- Dividend Stocks Helps keep track of a company’s financial health
- Provides steady & predictable Income – As long as the Dividend stays intact , it doesn’t matter about the value of the stock itself – the Dividend Income keeps rolling in.
- Dividend Stocks historically beat the overall markets and non dividend paying stocks
- Dividend Stocks are less risky because they are returning your investment back
- If you reinvest your dividends you are in effect dollar cost averaging your stock purchases.
- Dividends can provide funds to add more stocks
- Dividend Stocks can be like “Gold Fever” – Once you see the money rolling in it motivates you to save even more.
- Dividend Stocks have historically outperformed the Stocks that do not pay Dividends
I know there those investors that will disagree with me on owning Dividend Stocks. Some prefer pure growth plays in stocks. There is an advantage to them – when you own a non-dividend paying stock they tend to grow their stock value quicker and you don’t have to pay taxes on the Capital Gains until you sell the stock. This argument is lost in a Tax Deferred account such as an IRA. And for those that desire an income stream because they are near or at retirement age you would be simply out of luck. But if you are very young, have a time frame of greater than twenty years I would certainly not discourage you from investing in Non-Dividend paying stocks but I personally belong in the “Bird in the Hand” camp. Dividends are for the most guaranteed but stock equity appreciation is not.
What do you think? Can you think of other advantages or disadvantages of stocks that pay dividends? Please share your thoughts and comments below.