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High dividend-paying stocks with solid fundamentals are one of the safest and fastest ways to generate a solid return in the stock market.
Here are the top five reasons to own dividend stocks:
1. Dividends cushion the stock price
Yield support of the dividend which is the stock’s annual dividend divided by its share price creates a cushion against selling pressure as the stock price trends lower.
A lower stock price causes a higher yield thereby encouraging value-oriented investors to step in and offset the selling.
During a general downturn of the economy or a major stock market correction, those companies offering safe dividends find themselves better protected relative to the whole market.
2. Dividends protect you from short sellers
Short selling is the selling of a stock that the seller has borrowed from a broker in anticipation that the stock price will go lower. If the price drops, the short seller can buy back the stock at the lower price and make a profit on the difference.
A high dividend protects you from short-sellers, who are more reluctant to borrow money from a broker knowing that they are responsible for paying the dividend to the investor actually owning the stock. This scenario cuts into their potential profits.
3. Dividends generate quarterly income
The income you can receive from a decent yield can be significant, especially for retirees. A big advantage is that the taxes paid on dividend income are lower than those paid for earned income.
4. You can benefit from accidental high yielders
After a market crash some companies offering small, safe dividends end up with high dividend yields because the stock price has dropped dramatically.
Look for those accidental high yielders that provide more than 4 percent.
5. Dividends can grow your money faster
Dividend-yielding stocks make most sense in your IRA or 401(k) retirement portfolio where you can re-invest your payouts and let them compound tax-free for decades. Not only do you benefit from capital appreciation of a „best-of-breed“ stock over time, but you also typically receive a quarterly income from the dividend.
For the active investor looking for a reasonable level of safety of principal with the upside potential to earn a little more from your investment, then exploring the world of dividend-producing stocks is worth the little effort involved.
I encourage you to get started today in finding those great stocks that have the potential to produce consistently high returns for you.
Disclaimer: Any information shared on Stock Investing Simplified does not constitute financial advice. Stock Investing Simplified is not a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities readers or customers should buy or sell for themselves. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser. Video Rating: / 5