I think that investing in dividend paying stocks needs to be a necessity for anybody who is serious about retiring early, wishes to gain wealth, and hopes to be a decent philanthropist in the future. Many people understand the concept behind dividend stocks, but at the same time are scared to pull the trigger and become an owner of a publicly traded company. Why you may ask?
Concerns:
Volatility concerns are in the minds of everyone now a days, but if you have a buy and hold mentality then that should not be a concern for you. Risk of losing your investment because of bankruptcy fillings for those companies is another red flag we should all be made aware of, but for the most part if you do some research you can avoid this critical flaw with investing.
Companies that have been in business for over 30 years are very established and for the most part will not be going anywhere in the near future. If all of sudden the media is reporting negative news on a company you invested in on a consistent basis, then it is in your best interest to sell immediately and avoid losing all of your money.To be fully protected just watch the stock once a week and if it happens to fall below 20% then sell it. The point is you will have clear signs when to jump ship.
Research / Information:
Recently Dividend Growth Investor ran a post on why he is so obsessed with dividend paying stocks. I think you should definitely read it as well to help you solidify why it is pertinent to add these stocks to your portfolio. Through this blog and various other sources on the intranet you can find several dividend paying list of Dividend Champions, Dividend Achievers, or Dividend Aristocrats. All of the companies on these lists have been in business longer than average and consistently increase dividends every year. In some cases if you buy at the right price you can successfully have a 6-9% return on your money that increases every year when the company raises its dividend per share rate. If you invest in the companies listed in these lists above you are successfully reducing your margin of error.
Conclusion:
Granted the actual reporting of dividend paying stocks and companies is a modern concept of the capitalist business model, (About 100 years) but I also think it will be around for the forseeable future and most likely another century, as this business platform does not show any sign of evolving into something else. It all comes down to what choices you will take to either be a part of the dividend paying concept or not. In my opinion I feel more comfortable investing in companies that do pay something back to its investors for taking a risk instead of non-dividend paying companies that require a more intense full faith approach to buy and hold.
I feel dividend investing is a no brainer and yes you have to lock in your money for years at a 4-9% percent return on that money while paying taxes. But doing that is still better than your money being eaten up by inflation thus reducing the purchasing power of that money every year. Keeping money in cash can only take you so far and investing it is the real way to wealth.
RichUncle EL
