Why Invest In Dividend Stocks

Why should I invest in dividend stocks?

What Are Dividend Stocks?

At the most basic level, dividend stocks are stocks that pay dividends.

A dividend is a cash payment made by a company to shareholders.

Dividends are set by the corporation’s board of directors.

Why Invest In Dividend Stocks for Portfolios

There are a lot of different reasons to invest in stocks. For many people, the purpose of investing in stocks is the capital appreciation that occurs over time. This is especially true for long-term investors constructing well diversified portfolios.

Other investors invest in stocks in order to generate income. Dividend stocks pay a regular cash dividend to investors who own shares of the company’s stock. Putting together a portfolio of companies that pay dividends can generate income that investors can use for any purpose.

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Get Paid To Invest

For me, the best reason to invest in dividend stocks is to get paid while investing.

Remember, for long-term goals like retirement, or college planning, a well diversified portfolio tailored to your risk tolerance is the best investing strategy.

For investing beyond long-term goals, or for additional investing, dividend investing is a clever way to get paid while you wait for your investments to appreciate over time.

Consider Google stock, or Alphabet stock as it’s known these days. When you invest in Google stock, you are investing in the prospects of Google. That’s not a bad investment. Perhaps you have a goal of holding Google for three years, or a goal of achieving a 20% from your investment. Either way, over that time, you get nothing out of Google stock. You simply have to wait for the stock to perform as you expected, or eventually sell the shares for either a capital loss, or for a profit below your expectations.

Now, consider Apple stock. A lot of investors like to hold Apple stock for the same kinds of reasons as Google. The company has a long track record of producing solid earnings and returns (at least once you get past that almost bankrupt thing from the 90s). Using the same strategy as above, you might want to hold Apple stock for three years, or until it produces a 20% return. However, unlike Google, Apple will pay you to hold on to your Apple shares while you wait to achieve your investing goals.

Apple currently pays a dividend of 88 cents per share, per year, or 22 cents per quarter. If you bought 100 shares of Apple stock at $150 per share, your investment would be $15,000. If your strategy were to hold the shares for three years, during that time Apple would pay you $264. You could use that money to make different investments, pay fees on your investing account, or simply allow it to collect interest, perhaps to use to pay some of your capital gains taxes.

Higher dividends provide higher ongoing income.

apple stock dividend stocks

Best Dividend Stocks

You might think that the best dividend stock are those that pay the highest dividends. While it is true that the highest dividends pay the most income, they may not be the best investments.

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There are several different dividend stock investing strategies that we will look at. Generating the most income is one strategy, another is to find stocks that will have the highest combination of dividend payments and stock appreciation. The final strategy we’ll look at is what I like to call the Bond Dividend Stock strategy. The Bond Dividend Stock strategy seeks to find the highest dividend payments from companies that are unlikely to go out of business or cut their dividends allowing the investor to simply hold these stocks without any sort of end date or goal, selling only when a need for capital arrives.

Stay tuned for articles looking into each strategy, or check back for the upcoming Finance Gourmet newsletter that will put strategies and topics like this directly into your mailbox.

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