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Why Investors Should Consider Investing In Dividend Stocks

July 04, 2012 | Comments: 0 | Views: 137

Many stock market investors, including myself, lose sight of how powerful investing for dividends truly is. A lot of investors are simply looking for that one stock that will eventually go up in price over time. While there is nothing entirely wrong with this method, the problem is that you have your capital tied up in an investment that is not bringing you in any income. Would you invest in any business that did not bring you in any income until you sold it? Well, this is what you are doing when you are investing solely on the basis of a stock appreciating in value.

Some of the advantages that you have when investing in stocks that pay dividends besides the fact that you are receiving income from your investment are:

  1. You make money in a bull or bear market. Think about it. It does not matter what the price of your stock is, you are still receiving dividend income.
  2. You can reinvest your dividend income for more shares hence more dividends.
  3. Companies that pay dividends, usually, indicate that the company is truly making a profit.

Investors that invest solely for dividend income do not care if the stock market is up or down because either way they are still receiving a check. In addition to that, if the stock price is down, these investors look at it as an opportunity to purchase more income at a lower price.

Furthermore, while dividend income may seem insignificant at first, over time after years of reinvesting it can become significant. As you buying more shares, you are receiving more dividends. This is an excellent example of how an investor can compound their initial investment several times over.

Moving forward, companies that pay dividends indicate that the company is actually making money. Keep in mind, that dividends are paid out to shareholders in cash. You should also understand that any company can say that they made so much in profit on paper. Many companies have stated that they made so much in profit, then when it is time to make a payment on something they are scrambling for cash. This is exactly how Enron was exposed for their fraudulent accounting practices.

If you are a stock investor, then you should definitely examine you investment goals. Recognize that as an investor you should focus on, both, investing for income and capital gains. You should also realize that investing solely on the hopes of a stock appreciating in value is tying up your cash.

And if you want to learn more about stock market investing basics visit http://www.howtobeastockmarketplayer.com

Source: EzineArticles
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