It’s no secret that dividend stocks are in high demand for the income they generate, but what is stopping you from dividend investing?
Dividend stocks for the win!
Today, we’re going to discuss why you should invest in dividend stocks for your income plans. Dividend investment is attractive for multiple reasons:
- They are passive income.
- They are generally taxed at a lower rate, if taxed at all!
- They can be dependable & safe.
- It isn’t difficult to find a decent yield.
While banks are only paying about .10% on your savings accounts and .5% on your CDs, you can find dividend paying stocks all day long yielding 3-4%. Yes, that isn’t the most stellar return, but it’s far better than the half percent your bank is willing to pay.
Fear 1: Market Volatility & Dividend Stocks
If you’re afraid to risk your principal in the stock market, then your immediate reaction is intelligent.
You should never jump into something that you don’t understand, but that doesn’t mean you should stay away forever, it means that you need to learn more about the market, and that’s what you’re doing right now!
Don’t be lulled into a false sense of security, because your money is in a CD. If your CD is yielding .5%, then you’re losing money.
At a normal rate of 3% inflation, you’re losing 2.5% in principal each year. The deceitful part of this is the number in your account never changes, in fact it goes up slightly, how could you be losing money?
There is nothing safe about leaving your money in a low yielding CD, it just guarantees a more predictable erosion (assuming inflation doesn’t go haywire) of your principal.
Fear 2: Not Being Paid Dividends
You might be concerned about not being paid the dividends you’re owed. Each company has a board of directors and they must approve and declare the dividends that will be paid out, if any.
You might be concerned that you will buy a stock, then the company will choose not to pay dividends, but that is why you pick companies with a good track record.
This has been made easy by indices like the Dividend Aristocrats Index and the Dividend Champions index. These indices are composed of companies who have consistently declared and increased their dividends for the past 25 and 10 years respectively.
If you pick a company from these lists, then you’re pretty-well guaranteed a payout. There is more to dividend investing than simply picking a stock off of those lists, but just know that it isn’t as risky as you may fear.
What Makes Dividend Stocks so Great?
Besides the reasons listed above, it is generally easy to do. Yes, there is a lot to know, but it doesn’t have to be terribly complicated.
- You pick a company you like, with:
- a good track record
- solid financials
- a decent price.
- It won’t require a constant concentration on the daily fluctuations and nuances of each bad news day.
- When there are fluctuations, you generally just ride them out & look for buying opportunities.
- You repeat the process to build your portfolio
Stocks that pay dividends tend to enjoy steady payouts and a gradual appreciation of stock price. I like to reinvest the dividends as this has the same effect as compounding interest in a bank account.
Now, Dividend and Conquer!
Dividend paying stocks can be an excellent method for growing your savings and income, but they are useless if you’re afraid of them. Learn as much as you can, get out there, and conquer your finances by including dividend stocks in your portfolio.
This article is a part of our free Stocks that Pay Dividends Training Course. Check it out now!
About Wealth Artisan
Great article! I’m not a huge fan of investing in stocks but I’m considering putting some money into a fund of divident of paying stocks. I think this is the more practical way for the average investor who doesn’t have the time or knowledge (like myself) to follow the market.
-Ravi Gupta
Hello Ravi,
Some people are just too busy to follow the market, and that’s OK. You can speak with a financial advisor and discuss some dividend funds that would fit your needs. The good thing about funds is it is an easy way to diversify!
Thanks,
Timothy
I love the dividend aristocrat list as well. I actually use that as my first stock screener when I created my perpetual income machine (i.e. the dividend portfolio lol)
Hey Evan,
Thanks for stopping in! I love the Dividend Aristocrats Index as well. If I can’t find anything I like on that, I’ll look over the Dividend Achievers Index. Those constituents only have a 10-year history of consistent dividends, but you can still locate some good finds. Good luck with your perpetual income machine!
Thanks,
Timothy
Love the title! Dividends are a great way to invest, especially for those that are worried about the market. It’s a relatively safe, low risk investment, that should outpace inflation…or keep up with it at the very least. It amazes me how many personal finance bloggers, and even planners, miss the big picture of inflation eating into savings accounts.
Hey Justin,
It surprises me as well being that inflation is being so understated. I think that having a whole number in a bank account that never goes down, people get a false sense of safety. I’m glad you like the title and will continue spreading the word about inflation’s effect on savings.
Thanks for stopping by!
Timothy
Divided investing is one way to deal with a fluctuating market. As I get closer to retirement, I expect to increase dividend investments.
Hey Krant,
Dividend investing can really smooth out the peaks and valleys in everyday market volatility. Today, many investors advocate silly, short-sighted investments and day trades leveraged to the eyeballs. This market wizardry doesn’t create real wealth over the long term. I would advocate dividend investing from the beginning. The compounded effect of dividend reinvestment would obliterate any of these short-term returns that people try to realize by buying high, and trying to sell a few cents higher. It just takes time and patience to realize your gains.
The funny thing is, because everyone is trying to day trade, the patient dividend investors will be able to reap the reward because we’ll always have suckers buying and selling even at the highest peaks. Enjoy your dividends and your retirement.
Thanks for stopping in!
Thanks,
Timothy
Dividends have been an important component of total market return throughout history so ignore them at your peril. You have given some good indicators to use for picking good dividend stocks. Using these plus some diversification and averaging into a position should offer some decent protection against a Citigroup or GM that has to cut a dividend.
Hello OptionsDude,
You hit the nail on the head. For anyone who is afraid of stock picking, I would suggest dividend investing via funds or indices. Much of the total return, as you have noted, is because of dividends. People, for some reason, want these magical trading instruments, because dividends are “boring.” I’ll take the dividends any day. Great to see you around here!
Thanks,
Timothy
I’ve always had money in savings accounts but the low amount I’m getting right now (1%) is making me want to invest in something slightly more risky.
Hi Edwin,
Yep, the savers are getting punished terribly because of the fed’s cheap money policies. It’s forcing a lot of retirees to choose between eating into their principal or take more risk in the market. I’d like to say this weren’t one of their goals, but I think I’d be lying.
Thanks,
Timothy
Nice! As you point out, there are no guarantees when it comes to dividends, but stick to stable companies you cut your risks considerably.
Hey MoneyCone,
Indeed! There’s no predicting the future. The closest you can get is looking at past consistency. No company wants to break a 25 year history of dividend payments unless they are facing something truly dire.
Thanks,
Timothy
Great write-up! Seems like dividend articles was popular today
I have to wonder if you are going the DRIP route, or gather money and then when you think the market is low, buy in…
Hello MoneyReasons,
yes they were! I don’t really commit to one method. I like dripping as it averages us down, but if a price is low, I buy in. I wish I could set it and forget it, but I’m too active.
I look forward to the day when my DRP has a large effect than my principal contribution! 
Thanks,
Timothy