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I’ve gotten some feedback lately about why I’m so focused and passionate about dividend paying stocks. Many people my age (and I admit falling prey to his mentality) don’t have the one thing that is so vital to being a successful investor: patience.
Frank, they tell me, I know I can make money with dividends down the line, given a period of 10 years or so, but that’s simply not quick enough! You’re young, after all, you can afford to be aggressive and invest in Sirius hoping for the merger with XM to go through or (Insert new drug here) which is sure to get approved by the FDA (No, it isn’t.) Why don’t you go aggressive and make even more money than you could? Well let’s see…
- I don’t want to lose money: I understand reward comes with risk, but I’m not willing to put a large chunk of my portfolio’s value at risk for a reward that may or may not come through. Alternatively, dividend paying stocks like Altria and Coca-Cola have been awesome performers over the long haul.
- Dividends Work: What more can I say about this? Much of returns derived from Indexes like the S&P500 are driven by dividend paying stocks. Don’t believe me? Take a look at some of Jeremy Siegel’s work.
- Don’t you like a safety net?: Consistent dividend payers reward you for being a shareholder in the best possible way, with cold hard cash! Even if a stock is down for the year, dividends provide you with a comfortable cushion. If your stock is break-even for the year, you still make money!
- Slow and Steady Wins the Race: Some people seem to have a natural amount of luck when it comes to investing. Warren Buffett is the prime example of this, but how do you think he made so much money? By picking out undervalued companies and holding them for the long haul. Who am I to argue with success?
- Money Machines: You want to talk passive income? Every quarter I get money deposited into my account just for being a shareholder. If I want to tap that resource at anytime for extra income, I can, without triggering capital gains. I’ll also pay taxes at a mere 15% for qualified dividends.
There are more investment strategies out there than I could possibly count or fathom. I simply did my homework, examined various styles, and decided which investment strategy suited me personally. That’s the key to success for any investor, find your niche and go with it.
-Xias