The Benefits of High Dividend Stocks
High dividend stocks can be wise a investment choice, as you may enjoy price appreciation along with the income offered by the dividend or you can simply re-invest the dividend. In fact, from 1935 to 2007, over 40% of the total return from the S&P 500 came from reinvested dividends.
Who Should Consider High Dividend Stocks?
If you are a retiree or any investor looking for a source of income, then high dividend stocks might constitute a significant portion of your portfolio. Many investment advisors will tell you that you don’t need big capital gains to secure your retirement as exceptional dividend returns can help you accomplish the same thing with greater stabilty. Defensive investors should also consider acquiring solid dividend stocks as investors are often less willing to part with these stocks and the income they provide during market downturns.
Looking at Dividend Yield
As you may know, the dividend yield for a stock is the return that you get over a 12-month period. The yield is calculated by dividing the 12-month dividends by the share price. A 5% yield is considered significant and will typically get the attention of investors.
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Be Selective
When considering investment in dividend stocks one must be cautious. If the stock price drops and the dividend remains constant, the dividend yield will rise. If the stock price is dropping due to serious concerns over the company, that company may be unable to afford to continue its dividend payments. For that reason, conservative investors may only consider for investment companies with a continuous record of increasing dividends over a long-term period (15-20 years or more).
Measuring the Value
High dividend stocks can actually offer benefits in both bull and bear markets. In fact, it has been reported that during the bull market from 1982 to 2000, dividend stocks outperformed non-dividend stocks by a wide margin. During bear market cycles, dividend stocks are often seen as a safer option for stock market investors due to the income they offer.
While the high dividend stock investor is not necessarily swinging for the fences, they can often guarantee better returns for themselves than they would get from a savings or money market account.
More information about investing in high dividend stocks
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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