As we go through complex dividend topics on this blog and attempt to simplify them, we need to pause once in a while. Today we should stop for a second and take a look at some of the benefits of dividend investing. What exactly are the pros of dividend investing?
Dividends acts as passive income
Investing in dividend paying stocks is really a form of passive income. You purchase your stocks at the desired time and you receive a quarterly payment. The money is pretty much passive. The only requirement is that you hold enough capital in your savings to purchase the stocks. Then you’ll receive passive income on a quarterly basis. Instead of looking into scammy ways to attempt to earn a passive income, we recommend that you try investing in dividend paying stocks.
Dividends are paid by stable companies
By investing in dividend paying stocks, you’re ensuring yourself a majority of the time that your money is being invested into stable companies. A company that is able to share its profits with investors for a consistent period of time has established that it’s steady and will not collapse as easily during market swings. Stable companies also hold the ability to bounce back fairly quickly after a recession.
When you purchase shares from an established company that shares profits, the odds are that you have conducted extensive research to find this company in the first place. Think of Warren Buffet for example. He didn’t earn his fortune from investing in companies that he knew nothing about or hot companies that promised to earn you a ridiculous amount of money in a short period of time. He performed massive amounts of research to ensure that his money would be protected as an investor.
We are all different when it comes to investing. Some of us prefer to be day traders and to watch the stock market closely. The rest of us simply don’t enjoy this nor do we enjoy the stress that comes along with tracking the market swings. Through investing in dividend paying companies we ensure that are investing is passive and that we don’t have to track the many market swings that will occur.
Advantageous Tax Treatment
Dividend payouts are usually less taxed than interest income. Therefore, receiving dividends also means receiving more money in your pockets. For this reason, several retirees try to have a part of their portfolio paying off dividends instead of having only bonds paying interest income.
Another way to make your portfolio grow over time is to subscribe to DRIPs. In short (you can have the full length explication of Dividend Reinvestment Plan by clicking on the previous link), DRIPs allow you to reinvest automatically your dividend payouts without occurring any action on your parts or trading fees.
As you can see, there are several advantages of dividend investing. At the same time, trying to find the best dividend stocks is not very different than trying to find any other high quality stocks.