In today’s investment world, we are presented with a number of strategies we can employ to increase our net worth. Sometimes this can be a blessing. But for most, it’s downright overwhelming. It’s already a difficult feat to dive into the world of DIY investing. Now we have to choose which route we want to go down?
I’m not going to dive into the details of every investment method, we’d be here all day. Instead I’m going to talk about an investment strategy that is often used by people who have a less than normal risk tolerance, and aren’t willing to stick their necks out for some extra gains.
I would consider this method the most popular investment strategy there is, and if you encounter an experienced investor, you can all but guarantee they have a decent chunk of their portfolio allocated to these stocks.
What is this investing strategy? It is dividend investing.
In this post, I am going to show you why dividend investing should be your top investment strategy if you want to have long term success investing in the stock market.
Your Ultimate Guide To Dividend Investing
Investing In Income Stocks
Income investing, or as most like to call it, purchasing dividend stocks is an investment strategy that doesn’t necessarily focus on capital appreciation of the stock itself, but more on the money you receive in the form of dividends from owning the stocks.
So what is a dividend? Simply put, a dividend is a certain allocation of a companies profits that it issues to shareholders. These may be monthly, quarterly or even annual payments.
When we think of dividend stocks, we think of established blue chip companies that have been around the block. These companies have exhausted all their high potential growth opportunities and are now willing to generate profits for their shareholders in the form of a dividend at the expense of company growth.
This is one of the key concepts when looking at the differences between a dividend stock and a growth stock. The reasoning behind a growth stock not paying a dividend is simple. When you’re looking to expand your business, it doesn’t make much sense to dish out a healthy portion of your revenue to shareholders does it?
No, you want to reinvest that money back into the business to continue to grow. But when you are a mature company and aren’t interested in growth, paying a dividend makes sense.
Why Choose A Dividend Investing Strategy
Why should you choose a dividend investing strategy? The simple answer is better long term returns. Take two companies, one that pays a dividend and one that does not. By investing in the company that does not pay a dividend, you are at the mercy of the stock market.
If the stock price rises by 4%, you earned 4%. But if the stock price drops by 4%, you lost 4%.