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The world of investment comes with many winners and losers, many investors employ different strategies to get ahead in the market. Not every strategy fits every type of investor – this includes the dividend investment approach. The dividend investment strategy also creates different sets of winners and losers. If you are considering this approach to your portfolio, then arming yourself with knowledge can be valuable to your success. Here are several points to know about dividend investing before you adjust your portfolio.
Dividend investing is guided by an emphasis on buying stocks that offer payments as a percentage of shares. These payments may occur quarterly and are offered to shareholders as an additional incentive to hold on to certain company shares. Many platforms are available to help investors understand the dividend investing approach and utilize it to their best capacity. In addition, automated tools allow traders to re-invest dividends gained from stock back into their portfolio.
Less Impact from Stock Market Volatility
Many individuals using the dividend investing strategy are lured by its reduced impact from the stock market. The market itself is challenging to predict with certain accuracy. Stocks can fluctuate purely on the demands of investors and on activity from hedge funds and large corporations. Many investors do not have the technology and information available to them that insiders have, which can make investing decisions based on more speculation instead of verified facts. A dividend investing approach mitigates this issue because there is less dependence on the growth of the market, but more on buying stocks in which there are consistent dividend payments made.
Ease in Selecting Dividend-Paying Companies
Dividends have a different form of fluctuation than traditional stock. Company dividends are affected by different factors, including expectations of profitability. Younger companies that are experiencing slower growth have a higher incentive to offer dividends to investors in order to retain their shares. Other companies that are growing consistently have a smaller likelihood of offering dividends to investors. Small companies will actually have more resources to offer dividends. The fluctuation in dividends being offered from public companies is easier to predict than finding good growth stocks to invest in as the upcoming dividends are publicly available to see.
Consistent Income Vehicle
Dividends can potentially be utilized to provide a consistent stream of income to the investor. The traditional stock market offers gains in the form of speculative growth that may be vulnerable to various factors and conditions. As an alternative to stock market gains, dividend payments are almost always assured on a consistent schedule. Investors can also reliably estimate how much their dividend payments will grow over the course of a period. Using the rule of 72, an investor can estimate the percentage of their dividends and determine the amount of years it will take for that payment to double. Being able to estimate these increases can be valuable in times of high market uncertainty and volatility. Also during these turbulent times and record low interest rates dividends offer a much higher yearly return on your capital then putting your money in a savings account.
By investing on a planned schedule, you can actually set up your dividend stock portfolio to give you a constant source of income on a monthly basis. Companies have different periods and quarters in which they pay dividends. You can set up your portfolio so that every month has at least one or more of your shares providing you with paid dividends.
Being successful with dividend investing still requires good foresight and speculative insights on your part. Some companies do not always have the growth and stability to ensure constant dividend payments in perpetuity. By being informed about your portfolio and investment decisions, you can make the dividend investment approach pay off in the long term. Another thing that is often overlooked when dividend investing is good record keeping, a good portfolio tracking software is a must especially when it comes to doing your taxes at the end of the financial year. Consider these elements if you are interested in maximizing your portfolio with a dividend investing strategy.
