Advantages and Disadvantages of Dividend Investing
A lot of investors will go looking for a list of dividend stocks then go and buy each stock on the list. There definately are some huge advantages to this strategy.
What are these advantages? Well for starters it helps investors to make a little extra cash flow. Everybody likes passive income and there is no easier way to get it then to go buy an investment that is consistently paying you.
The other advantage of doing this is that the stock really doesn’t need to go up for you to be profitable. Of course getting into a strong stock that is likely to go up is always the goal of investing. But dividends help you out even if you miss that goal. Of course we always want an investment to increase in value, but if it doesn’t or goes up very slowly dividends can be a big help.
While those dividend paying stocks have some nice benefits to them there are also some downsides. The biggest is that not all dividend stocks are great investments. Just because a stock pays out a dividend to their investors does not mean it is profitable. If the stock goes to $0 in the next year that small dividend they paid out is not going to give you back your losses. To add to that, just because a stock does not pay a dividend does not mean it is a bad investment.
So, how do you fix this? The best dividend stocks are the ones that both pay well and are fundamentally strong. Instead of buying every stock that can give their investor an income it can also be worth it to look for stocks that have huge growth potential. If a stock is strong enough and has the potential to grow it can be a pretty powerful investment. If not then it may be something to stay away from.
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