Although many investors see dividend stocks as boring, there is absolutely nothing boring about the long term historical returns that can be achieved by wisely choosing a dividend stock portfolio. For more information on why we atcompounding returns favor dividend stocks, read Dividend Growth Stocks for the Long Term.
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One of the most important but rarely discussed long term benefits of dividend investing is the ability to tap the consistent stream of quarterly dividend payouts to eventually help with day to day expenses. This ability to create passive long term income is one of the greatest benefits of dividend investing. It is no surprise that dividend paying, consistent growth companies have long been known as “widow and orphan stocks”, because in the past, dividend income was often used as a source of passive income for families following the death of their primary breadwinner.
If you dream of early retirement, a source of passive income for your family, or even just an eventual source of income beyond your day job, dividend growth stocks may be one way to diversify your investment portfolio and income streams.
- The industry’s long term prospects.
- The company’s long term prospects.
- The company’s economic moat.
- The company’s susceptibility to legislation or external factors.
- The company’s management.
- The company’s financials.
- Health of dividend payout.
- Historical growth of dividend payout.
Finding just one excellent dividend growth stock isn’t enough if you are seeking a dividend income portfolio. In fact, in order to successfully use dividend growth investing to create passive income, you must find a number of solid, dividend paying companies with good long term growth prospects and a history of increasing dividend payouts over time.
So, how many stocks should you own within your dividend growth portfolio? The answer is simple. You should own as many stocks as you can actively track and manage. Purchasing shares of stock requires research. Owning stock requires additional research. Consider yourself to be what you are, an owner of a major corporation, and put in as much work and research as you believe would be appropriate.
Dollar cost averaging is a great way to ensure that you continue investing despite the ups and downs of the market. Scheduling recurring transfers keeps you from attempting to time the market, and although it can result in purchasing shares in both rising and falling markets, dollar cost averaging is a widely accepted method of preventing putting all of your money into stocks at precisely the wrong time.
Dollar cost averaging into each position results in purchasing more shares when stock prices are low, and less when prices are high, dampening out some market volatility, and helping you build your net worth gradually over time.
If you can live off of your dividend stream alone, the price of your shares of stock will often continue to appreciate, even after you tap your stream of dividends to pay expenses. This means that your net worth will continue to increase, even while you pay yourself a salary of dividend income which increases every year as the companies in your portfolio increase their dividend payouts.
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