A lot of investors find themselves encountering severe emotional shifts with the fluctuations that come with stock market investment. In addition, uncertainty may seriously surprise and hit you when suddenly prices drop while elation sets hearts racing with sprightliness when prices rise.
However, people who prefer to invest in long-term dividends stocks, won’t experience the same anxiety as stock prices fluctuate. I can perhaps count myself to be in this category. I haven’t sold any position in last month or so, since dow lost 1000 points in a day. In fact, I bought CocaCola and Johnson and Johnson stocks. They both have consistent dividend paying record over many years.
From the mindset of dividend investors, they are aware that the success of their financial investment is not hinged on the inconsistencies of the market itself, but rather on the long-range prosperity of the company. It’s a historical fact that the dividend, as well as the stock price, will sooner or later ascend, in the long run, resulting in considerable growth over a long period of time.
What’s called a dividend
When an openly traded firm gains a profit, the management usually has three options:
- Offer a dividend to investors
- Offer a share buyback
- Reinvest the money in the firm
Typically, fast growth firms will keep the earnings and either reinvests their revenue in the long-range expansion of the firm or consider offering a share buyback. Take note that share buybacks augment each investor’s earnings in the future by means of reducing the outstanding shares of shares.
Meanwhile, other companies shall release a dividend or a share of the firm’s earnings which is disbursed to investors on a quarterly basis.
What is long-term dividend investing?
Investing in dividend stock does not commonly provide the short-terms capital appreciation of what is termed as hot penny stocks nor does it correspond to the incitement of day trading which at the time of fast-growing markets can make these ventures appear like monotonous, slow money stocks.
What is more, dividend-paying securities usually lose favor in fast growing bull markets, after while recouping an ecstatic following at the period of unpredictable and unstable markets. This is certainly because of the comparably average growth nature of these securities and also the gradual compounding nature of dividends which can be brought about by a long-range, buy & hold philosophy of investing in a dividend stock.
Be that as it may, at the period of gradual growth bear markets, investors increasingly look for shelter in dividend growth stocks like what is known as blue market chip stocks. More than that, the security that these stocks can provide makes them an appealing class of security to regard as a valuable part in any portfolio especially at the period of thriving and tough economic conditions.
Now that, you have explored about what dividends are and the critical role they play in the market, have more insight and learn how to invest in stocks. Do you think that this the ideal investing path for you? In order for you to figure this out, here are a few factors for you to contemplate on:
The power of dividends
When deciding whether or not to start with dividend investing, it is crucial to understand the unseen potential of dividends such as:
- You cannot fake a dividend. The latest record has disclosed that creative accounting approaches can be utilized to deceitfully magnify a firm’s earnings per share and other valuation tools to crookedly augment share price.In actuality, dividends offer security from dirty tricks. Firms cannot disburse money that they do not have.
- Dividends lead to more shares. Through using DRIP (Dividend Reinvestment Strategy or Dividend Reinvestment Plan), this can result in each of those so-called incremental payouts that create commission-free equity in your favor, this eventually leads to greater dividend payouts the next quarter.
- Dividends secure you from the negative aspect of the situation. During bear markets, particularly when prices of several securities drop, dividend-paying stocks really become more appealing as their dividend yields definitely rise. This can lead to an artificial stock price floor, inhibiting remarkable capital losses which can aggravate panic selling.
- A great number of people invest in dividend-paying stocks so they can benefit from stable payments and the fortune to reinvest the dividends in order to buy additional shares of stocks. And, because a lot of dividend-paying stocks embody firms that are regarded as mature and financially stable, the stock prices of these firms may continuously escalate over time while shareholders delight in regular dividend payments. Furthermore, these well-founded firms commonly increase dividends over time.
In a firm that pays steadily, increasing dividends is more likely a financially-secured company that creates constant cash flow. Furthermore, these firms are typically secured and their stock prices are likely to be less unstable as compared to the market in general. In itself, they may be lower risk in comparison to firms which do not pay dividends and have more changeable price shifts.
Due to the reality a multitude of dividend-paying stocks are perceived as lower risk, the stocks are an attractive investment for younger people who are searching for ways on how to bring about income over a long period of time and for people who are close to retirement stage or are already in retirement phase – who long for a source of retirement income.
If stock picking is a problem, then you might want to leave it to investing experts. They actually help you pick stocks based on famous gurus such as Warren Buffett and Benjamin Graham to name a few.
Apart from these, what contributes even more to investor confidence is the linkage between dividend yield and share price. That is, if share prices fall, the yield will increase accordingly.
Readers, any other benefits (or even pitfalls) that you like to share with our readers?