Dividend Investing is an investment strategy that provides investors two potential sources of possible profit: first, the expected income from annual dividend payments; second, potential capital appreciation over time through compounding dividends. There are also those who take dividend investing to further their investment portfolio by taking advantage of market tendencies toward dividends. With so many different options available to investors, dividend investing can provide high returns and a strong foundation for building wealth.
dividend investing can generate income in several different ways. Some dividend stocks will pay out dividends periodically throughout the year. Other companies only pay out a dividend once per quarter. Still others allow their shareholders to choose to receive either a dividend quarterly or annually. Depending on how regularly you want to receive your dividend payments, as well as how much you’re willing to pay out, dividend investing can fit into any investor’s investment plan. The more you invest, the more you can potentially gain.
One of the main reasons dividend investing has been so successful for so many years is the common sense idea that it provides steady income streams. Unlike bonds or other types of fixed interest investments, when you purchase dividend stock you have a guaranteed source of income for the full term. This is not true with most other types of investments, especially with the highly volatile investments seen in the current global financial crisis. However, the potential for gain is certainly greater with dividend stocks. In fact, in some cases, they can offer the highest return on investment possible.
It is also common sense that dividends are a good way for a company to keep its stocks from being left in the hands of competitors. Because they do not require additional capital expenses like other types of investments, they are often looked at as a company’s most efficient method of raising the funds it needs to remain competitive. By increasing the rate of dividend payments, a company shows its shareholders that they are an important part of the business. This recognition leads to increased loyalty and more shareholder equity. This shareholder equity also tends to outperform other common equity investments, due to the fact that dividends are generally exempt from taxation.
One of the reasons dividend investing has become so popular over the last several years has been the recognition that many stocks have become too risky to be beneficial to the investors. These stocks have become so overvalued that the profit from them has become too great to risk. One common sense idea that investors have come to recognize is that if a company’s stock continues to perform poorly that it will eventually be forced to pay out large dividends to its shareholders. If the stock continues to underperform the market, then the company’s management may have to cut back on dividend payouts in order to conserve cash. This reduces liquidity, which can lead to pressure on the company to make bad acquisitions or even file bankruptcy.
As a result, savvy investors have turned their attention to companies that offer stocks with a low dividend yield. If the earnings per share is good, then the dividend yield should be high as well, and the overall return on the company can be very attractive. When these stocks are purchased, the investor will realize a tax benefit as long as the company is not able to generate any operating cash flow from dividends. The tax benefit will be more than enough of an incentive to move forward with the investment. Additionally, there are no restrictions on how the dividend can be used, and the investor can invest however he sees fit. In other words, there are virtually no restrictions or penalties attached to dividend stock ownership.