It’s no secret, dividend stocks are in high demand for the income they generate, but what is stopping you from dividend investing?
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.
- Dividends 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.
Table of Contents
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 lull yourself 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.
Bank Accounts Make You Poorer
Buy and Hold is Eternal
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. 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.
Learn More About Dividend Aristocrats
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!