Disadvantages Of Dividend Investing, and What to Do About it
One method you can use to get some passive cashflow from the market is by investing in dividend producing stocks, however there are some disadvantages to it to overcome. Like all other strategies it comes with good parts and bad parts.
When you are buying dividend stocks you do not have to worry about getting into securities that may not go up in value. Because you are getting a consistant cash flow off the stock it only has to not go down to be a good investment.
It is also a lot easier to manage a dividend portfolio because you simply have to find a great List of dividend paying stocks and invest in the securities that have a great dividend and are stable.
However this is not always the best way to look at it. If you are only looking for stocks which produce a high dividend you may not be getting into the best investments. Many times stocks that do offer a high dividend are doing so because they are bad investments and there would be no other way to get investors to come to in.
A way you can get around this is by combining dividend investing with value investing, so you also look at factors such as the debt to equity ratio and the PE ratio in order to help pick stocks that are likely to appreciate in the near future. This way you can create your own guidelines which will help you determine when a stock is a good pick and when it is simply a terrible investment.
The other disadvantage to regular dividend investing is that you lose sight of other ways of pulling money from the market. Selling naked puts and covered calls can be much more profitable then dividends.
These reasons are why instead of just buying the stock that gives off the highest dividend; I like to look for stocks which offer great dividends, great fundamentals, and high option premiums. Checking for all three increases my changes of being profitable.
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