Many investors chase small companies that might have a promising future. While these gambles may pay off for some, many people end up losing their hard-earned money. In reality, an investor who is in it for the long haul must buy dividend-paying stocks. Here are seven reasons why you should love dividend stocks.
Most companies that pay a dividend are already established in their industry. When a company is established, the stockholder will enjoy owning a piece of a company that will likely stay in business for a long time. An investor who wants stability and security should seriously consider investing in a company that returns profits to shareholders.
While most shareholders ultimately lose money in the stock market, an investor who owns shares in dividend-paying companies will likely see serious gains. Historically, companies that pay dividends have rewarded shareholders with a solid return on investment over the long haul. Of course, when researching a dividend-paying company, an investor must do their due diligence.
Many great companies have experienced bad times when the CEO makes ill-advised moves with company money. When the company must return money to its shareholders, the people running the company have to make wiser investment choices.
Some brokerage houses allow the shareholder to reinvest dividends. An investor who reinvests dividends will do well in the end. In fact, holding dividend-paying stocks for the long haul is one of the best ways to create serious wealth.
Better Than a Bank
The interest rates available at banks are paltry. Most dividend-paying stocks will give a higher return on investment than a bank or credit union. At the same time, a shareholder will possibly see the stock price appreciate.
Buy and Hold Wins
Most active traders end up losing money. A person who buys shares in a stable company that pays a dividend will make money without doing any hard work. Not only that, when a shareholder holds a stock for a long time, he or she will not spend too much money on brokerage fees.
When making investment choices, many forget about taxes. Depending on the tax situation of the individual, a dividend-paying stock may be a great investment. The Internal Revenue Service and most states treat dividends more favorably than other investment gains. Of course, one must consult a qualified tax specialist as tax situations differ from person to person.
In reality, most shareholders end up incurring large losses in the market. When an individual can look past the hype and buy shares in a well-established company, he or she will have a solid investment gain without all the drama. Without a doubt, a smart investor should include dividend-paying companies in his or her portfolio.