Never Underestimate the Power of Dividend Investing
Everybody wants to get the greatest return possible from their investments in the stock market. Who wouldn’t love to see their stocks double or triple in value? Although this may be the goal of investors, it is very difficult to achieve.
One of the ways that investors can increase their chances of selecting winning investments is to invest in companies that pay dividends. Let’s talk about some of the advantages of dividend investing so you can see what I mean…
Dividends provide income
Senior citizens love stocks that pay dividends because of the consistent income that is paid out. Investors can count on stable dividend payments to help with their monthly bills. Dividends enable investors to receive some cash from their investments without having to liquidate their positions. (Or, if they don’t need the cash right away they can reinvest the dividends and take advantage of the power of compounding.) This income can add up to a sizable amount for an investor that owns a lot of shares.
Dividends are taxed at a lower rate
Regular income that is received from your job is typically taxed at a much higher rate than dividends. Dividend income is taxed at a substantially lower rate which means that you have to pay less to the government and get to hold onto more of your own money. The tax savings can be used to help your retirement account grow.
Dividends add to the total returns of stocks
One of the most overlooked aspects of dividend investing is the fact that dividends can increase your returns in the market. During difficult bear markets, dividends may be the only positive returns that your portfolio sees. A stock with a high dividend yield could easily add an extra 3% or more to your investment returns.
Dividend stocks outperform the market
Studies have shown historically that stocks that pay dividends outperform stocks that do not over the long term. That is because of the compounding nature of dividends. Dividends can be used to add more shares to your investment position which increases the total return of your investment.
Now you can see why dividend investing is not just important to older investors but young investors as well. Dividends are an essential ingredient to improving your portfolio performance and creating additional income.
Learn more about investing tips and information by watching the latest videos from Fisher Investments.
loading...
{ 4 comments… read them below or add one }
I didn’t know dividends were taxed at a lower rate! What are your favorite stocks that offer dividends?
Hi Jenna,
I’m definitely not qualified to give financial advice so don’t take this as such, but if you’re looking for stocks with a long history of dividends then a good place to start is with the Dividend Aristocrats.
Here’s a current list…
http://whatisdividend.com/dividend-aristocrats-list/
@Jenna — If you don’t want to pick individual stocks that offer dividends, you can also investigate the option of buying ETFs that track dividends.
Vanguard offers two: one that focuses on companies with high dividend payouts, and another that focuses on companies with the most year-after-year dividend growth.
I’m sure there are several other brokerage houses with good dividend-tracking ETF offerings, as well.
Good point Paula, that will also allow you to have a little more diversification.
{ 1 trackback }