7 Reasons To Buy Dividend Stocks – Part 1

What's It About Buy Dividend Stocks Which Make Them Such a Powerful Investment Strategy?

It appears that everywhere you look today some monetary commentator is encouraging folks to load up on dividend stocks. I’ve been investing in these stocks for over 7 years and have found them to be a successful investment strategy. There actually isn't any secret to this strategy. All you need is the readiness to do a modest number of research and a web-based brokerage account. For doing so the return could be tremendous. In this Heart I’ll give you 7 reasons -paying stocks. But first, what's a dividend anyways?

What's a Dividend?

If you’re new to investing you might be wondering just just what is a dividend? A dividend is only part of a business’s gains that's paid out, generally to its stockholders, on a quarterly basis.

Why Do Firms Pay a Dividend?

If an organization pays all its operating expenses and still has money left over, it's two choices open to it. It can reinvest that cash back into the company to keep growing its gains or it can pay some of the cash out to its investors. Modest firms that are fast growing normally pick the first alternative, while firms that select to pay a dividend are generally secure and mature businesses that have a slower increase profile.
By way of example, think of Microsoft (MSFT) and Apple (APPL). Where they kept reinvesting their earnings to build out their businesses to keep up their high growth rates both firms went through a period of extraordinary increase. Now that both firms have a dominant position within their businesses it’s no coincidence that a dividend policy has been instituted by them in the last few years. Additionally they have fewer growth opportunities available to them than they had and, thus, less of a demand to keep all their gains while they’re both fairly lucrative.
Now that we understand what a dividend is and why they are paid by firms, here are 7 reasons why everyone should possess dividend stocks.

#1 Buy Dividend Stocks Supply Equilibrium to an Investment Portfolio

Dividends supply essential stability and income during stock market crashes, particularly to an investment portfolio. During the 2008-09 marketplace fall my stocks were down about 50%. Those were undoubtedly frightening times but what helped me get through it all was the fact that my dividend income kept rolling in quarter after quarter. This is another great advantage of dividend stocks. They keep paying you in good times and in bad.

The majority of people think of the stock market as a “buy low, sell high” type of game where the investor is always striving to win” at timing the marketplace. In reality that tactic to investing is likely cost you dearly and to end really poorly. On the other hand, the strategy of the dividend investor is the precise reverse. Ideally the game will be to buy and hold…eternally as it pertains to dividend stocks. That’s because a growing variety of studies have found that it’s “time in” rather than “timing” the marketplace that makes all the difference with investment yields and that around 50% of market yields over the last 100 years have come from dividends.

#2 Buy Dividend Stocks Supply Passive Income

Dividends are an excellent source of passive income – that's income that you simply don’t need to
It’s for that reason that I’ve located investing in dividend-paying stocks to be an effective long-term strategy. If someone was to purchase and hold a basket of quality dividend stocks and reinvest the dividend income, with the aid of compounding, that individual may have the capacity to retire and live off of the dividend income alone; without ever having to sell the underlying assets that generate that income. Why dividend growth investing is such a strong investment strategy that’s.

work for. If you purchase a set of quality dividend-paying stocks subsequently you’re making your cash work for you. By reinvesting your dividend income you'll be able to grow your assets, both and your income exponentially over time. The passive income which you have coming in, the less you’ll really must work for cash.

#3 Dividends Diversify a Man’s Income

Dividends from blue chip firms that are quality are usually a steady source of income that can, over one’s working life, nutritional supplement employment income and finally become a primary source of income in its own right. I should say here that dividends are by no means ensured. After all, there isn't any such thing as certainty in life. Having said that, some Canadian banks, by way of example, have paid dividends for almost 200 years – through a Great Depression, two world wars, a Cold War and the International Financial Catastrophe. As one can get in my opinion that close to a sure thing.

Dividends are a simple way. Most folks rely only on 1 income source: their occupation. If you begin constructing an investment portfolio of quality dividend-paying firms then you're basically constructing another income stream that can continue to grow over time. This type of income diversification can function as a safety net to cushion the blow of a sudden job loss or unexpected increases in someone’s cost of living.

In the next post I will be talking about the other 4 reasons to buy dividend stocks.