Dividend stocks can be one of the absolutely best investments you can make. They are a large part of the secret behind Warren Buffets success. If you invest in dividend stocks you get a yearly return on your investment that you can use to cover living expenses or to buy new shares. You never have to sell you stocks to benefit from your investments.
Dividend stocks allows you to make money in two ways.
- You get the dividend. The size of the dividend will vary a lot between different companies but if you selectively choose the dividend stock you invest in you can get close to 5% in yearly dividend. This is based on the market value of your stock. Not what you originally paid for them. You might have to accept a slightly lower divided if you want to build a more well diversified portfolio.
- Increasing market value. The perfect dividend stock is a stable but growing company with a long history of high dividends. These companies will continue to grow after you have bought the stock. This will hopefully result in a high stock price that will increase the value of your portfolio and your total equity.
Dividend stock will as your see give a you a good mix of cash and equity gains. You will get money to make new investments at them same time as your original investments increase in value. This makes dividend stocks the perfect investment strategy for retirement. You can build a portfolio that give you a dividend that is large enough for you to live comfortable on. You do not have to worry that your savings will run out before you die. The dividend portfolio will keep paying you more and more year after year no matter how long you live. You no longer have to dip into your investments to finance your retirement. You can live of the returns instead. This gives a security that few other investments can offer.
Finding dividend stocks
Finding high dividend stocks is very easy. There are countless websites that allow you to rank stocks on different stock markets based on their dividends. There are also a lot of websites out there listing the stocks with the highest dividends.
You should not have any problem creating a list of high dividend stocks. Once you created this list you have to take a closer look on the list and evaluate which stocks that are worth buying.
Evaluating dividend stocks
Evaluating dividend stock is not hard but it is very important to look at the last 3 to 5 years and not just the current year. There are many reasons why a company might offer a high dividend one particular year. A true dividend stock has a history of rewarding their owners with high dividends year after years. Dividends that keep growing.
Your goal should be to choose large, stable and well managed companies with a history of high dividends.
Always make sure that the company is growing and in an industry that has a future ahead of it. Avoid stocks in industries that are likely to die a slow death such as coal. Look for stocks that you think will be good investments over the next 20 years.
Buying dividend stocks
As a dividend investor you are likely to a be a long term investor. You want to keep the stocks for years and decades to come. With this in mind you do not have to worry about trying to buy the shares at the exact right time. Doing so can be very hard. If the company looks like a good long term investment at the currents levels then you should buy it. Do not get greedy and try to wait for the share to go down in value. If this happens later you can benefit from this by buying more stocks.
As a long term investor it is more important to add the stock to your portfolio then the exact price is.
Selling dividend stocks
I recommend an investment strategy where your goal is to never sell any dividend stock once you bought it. Your goal should be to stay in the company and benefit from its growth as long as possible. In an ideal world you are going to keep your stocks until the day you die or at-least for 20,30,40 or even 50 years. At the end of that period your yearly dividend is likely to be a lot larger than your original investment in the company ever was.
There is one main reason to sell a dividend stock and that is when the company seems to be stuck in a downward trajectory. A common example of this is when the dividend stays the same size or keep growing even though thr turn over and / or profits are down. This is a sign that the management don’t know how to use the money in a better way, that they do not know how to keep the company growing.
If this happens one year it might not be a problem but if it is an ongoing trend then you should get out of the stock to make sure that you do not go down with company. Many companies that shows these trends end up dyeing a slow death.
Spending the dividend
I recommend that you spend you dividend payments to buy more stocks. At least while you are still building your portfolio. If you re-invest your dividend you will end up with a lot more money in your account long term. It will also help to make your yearly dividend payments grow a lot faster.