Investing in dividend stocks is a good way to build long-term wealth.
Dividend stocks aren’t dependent on their share price rising to be successful investments. When you buy a dividend stock, you’ll receive a steady stream of income—generally on a quarterly basis. If the market crashes and the share price begins to fall, the nice 3% or 4% yield (or higher) will soften the blow.
Dividends are a measure of a company’s success and its commitment to shareholders. The companies that consistently grow their dividends are the ones whose sales and earnings are also growing. Companies that lose money or fail to grow usually don’t pay a dividend.
When a company pays a dividend—and especially if it makes an effort to increase that dividend every year—it shows that it cares about rewarding shareholders. Paying a dividend is also a savvy way to attract investors, which is why the share prices of most dividend stocks appreciate over time.
Dividend-paying stocks aren’t going to make you rich overnight. But they can significantly build up your nest egg if you buy and hold them for years, or even decades.
Not all dividend-paying stocks build wealth. You need to search for investments with timelessness and longevity—companies that are sure to not only be around 20 or 30 years from now, but still thriving. Dividend stocks become more powerful, and usually make up a larger part of your annual return, the longer you hold on to them.
For example, if you had bought Wal-Mart (WMT) in April 1990, your current yield on cost would be about 19%. That means you’d be collecting 19% of the value of your original investment every year from dividends alone. If you’d invested $10,000, you’d now be collecting about $1,900 in dividend payments every year.
With investments like these, it’s best to let your money work for you as long as possible.
That can mean riding out some tough times. Wal-Mart declined 23% during the 2000 bear market, for example. Selling as the stock declined would have saved you some money in the short term, but you also would have forfeited that 19% annual yield.
When buying dividend stocks, you have two options. You can either collect the quarterly income or reinvest it to buy more shares. The latter is called a Dividend Reinvestment Plan, or DRIP, and is an easy way to increase the value of your position without having to do much.
To help you find the best dividend stocks, we offer two dividend services at Cabot Investing Advice. Those are the Cabot Dividend Investor, a service that has beaten the market since its February 2014 inception, and Wall Street’s Best Dividend Stocks, an advisory that presents the best income investments from the top Wall Street analysts, researchers and advisors.
The Market Just Keeps on Going
The bull market keeps raging. All three major indexes just made still new all-time highs. The S&P 500 is up about 20% since the end of October and 78% since the low of last March. How long can keep... Read More
A Goliath of the Dawning Digital Age
Are you sick of hearing about the virus and the election? I know I am. But there’s good news. As hard as it may be to believe, these current obsessions will fade away, and soon. As the from... Read More
The New Year looks promising for dividend stocks. With prices in many growth sectors at high levels ahead of a very promising economic year, the relative performance of dividend stocks in general should be much better this year than in 2020. Read More
Despite a global pandemic and an economic crash, stocks had a great year. As of yesterday’s close all three indexes are higher for the year and very near all time highs. The S&P 500 is up over 14% while the tech-laden Nasdaq is an... Read More