As a dividend growth investor, I am frequently asked why I don’t invest in high growth stocks and, more importantly, why I believe investing for dividends is a more appropriate strategy.
In bear markets there are great buying opportunities for dividend growth stocks that are offering yields above their historical averages. Opportunities to buy great dividend growth stocks at above average yields is a great way to finance your retirement and increase the compounding effect of your future income from these stocks.
Here are the 3 most essential reasons that I prefer dividend investing:
1.) Dividends offer investors fantastic flexibility.
Dividends give you tremendous financial flexibility throughout your investing life. While you’ve got an income from working, you can reinvest those payments to speed the process of compounding your wealth. Once you’ve decided to retire, the cash thrown off by dividends spends just as well as any other source of money!
What is even better, a rising dividend payment can help you fight inflation by providing you more cash every single year.
2.) You can’t fake money in your pocket.
Dividends also have the added bonus of being exceptionally difficult for companies to fake. After all, it’s difficult to convince lenders to loan money to a company if that company is going to turn around and hand it over to its shareholders.
As a result, to sustainably make and increase those dividends, the business needs to generate serious cash on both a regular and repeatable basis.
3.) Dividends are paid from the company’s cash flow.
Perhaps most important, a company’s dividend payment comes from its operational success and not from the panic, hype, or analyst interpretations that influence its stock price. Throughout these rocky market periods, dividend payments allow us to make money even when the stock price moves lower.
Why Invest In Dividend Paying Stocks?
- Quicker compounding.
- Increased financial flexibility.
- Cash in your pocket without selling.
- A hedge against inflation.
- An check on the company’s accounting.
- Cash Flow in a down market.
With all of the benefits of dividends, it’s obvious why they can be an integral component of one’s portfolio.
Did I miss any benefits of dividends? If so, let me know in the comments!