Dividend Investing

Introduction

What is dividend investing? Dividend investing is a popular investing strategy where you focus on buying stocks that pay high dividends. As a refresher, a dividend is money that companies pay you for owning their stock. For more info, you can check out my article on them here.

Why?

Of course, that’s the big question when learning a new strategy. Why should I use it? The most common purpose of dividend investing is to create a steady stream of income. We’re not looking for huge returns on our stocks, although obviously no one’s complaining if we do get good returns. We just want to make our money through dividends.

Benefits

The main benefit of dividend investing is consistency. With regular investing, you can’t predict how much money you get. If you pick good stocks, you’ll make money, but if you don't or even if your good companies go through a short-term dip, you won’t make anything. Dividends are regular, and every 3 months you’re guaranteed to get a specific amount of money. That’s pretty awesome. This means that dividend investing is pretty low-risk. You’re basically guaranteed to get your money, which something like growth investing doesn’t offer you.

Another benefit is that you can use the money you get from dividends to buy more stocks. This is called reinvesting your dividends. Many people will buy even more dividend paying stocks to make even more dividends, and reinvest those, building up enormous dividends over time. Remember Ronald Read? If you don’t, check out my article here. He was a dividend investor, and made his fortune by reinvesting dividends.

Drawbacks

Of course every strategy has some drawbacks. For dividend investing, the big one is that you won’t see massive gains. Most high-dividend paying stocks aren’t rapid growers, and usually grow slowly over time. You’re not going to become instantly rich with this strategy. The point is to provide extra money that you can either use in your daily life or invest further. This is a very long-term strategy.

Where Can I Find Good Stocks?

Say you want to start earning some dividends. The logical next question is, Which stocks do I buy? There are a couple of industries that typically offer fantastic yields. The utilities industry is a popular one. This includes a wide variety of companies, but we’re most commonly talking about gas here. Chevron has a 3.55% yield, and Exxon Mobil has a 3.74% yield, which is pretty solid. Another great industry for dividends is the telecommunications industry. A couple of major companies that you may have heard of here include Verizon and AT&T. Verizon has a very high yield of 5.67%, and AT&T has an even more impressive 6.08% yield (these are all at the time that this was posted). These are just a couple of examples to get you started. There are many companies out there with great yields.

Conclusion

Dividend investing is a powerful investing strategy. It’s relatively low-risk and consistent. It’s also a great choice for people without much income, since it provides another source of income, and will allow you to grow a large amount of money over time. I’ll also mention that you don’t have to only stick to stocks that pay good dividends. You can combine dividend investing with other strategies like growth investing so you get the benefits of both. Good luck!

Sources

Yahoo Finance: https://finance.yahoo.com/