Is Investing in Dividend Stocks Worth It?
Dividends are a key component of stock market returns. They’re also a top source of passive income. Whether you’re new or already an experienced investor, this guide will show you a unique and useful view of dividend investing.
With the insight below, you should be able to better determine if dividend investing is right for you. And to start, let’s ask this important question…
Are Dividend Stocks Worth It?
The stock market is one of the largest wealth creators in the world. Going one step further, dividend stocks give ownership in some of the top companies. They have proven cash flows, and this allows them to consistently reward shareholders.
Getting down to the brass tacks, many dividend-paying companies pay quarterly. Companies usually pay on different dates as well. There are also some monthly dividend stocks out there. So investors can buy a basket of dividend stocks and set up a steady stream of income. Some investors will also line up dividend income to meet their expenses throughout the year.
But now it’s time to really answer the question…. are dividend stocks worth it? One of the most compelling reasons they are is that they’re pure passive income. Unlike rental properties and many other investments, once you buy in, you don’t have to worry about finding renters, maintenance, insurance, etc. You can sit back and watch the dividends flow into your account.
On top of that, Uncle Sam taxes dividends at a lower rate. A buy-and-hold approach leads to the long-term capital gains tax rate, which tops out at 20%. That’s much lower than the regular income tax top-out of 37%.
When it comes to taxes, you shouldn’t have to pay any more than you’re legally required to. Though the tax code is complex and hard to navigate. That’s why it’s good to consult with a tax professional as your portfolio grows.
What’s the Risk of Investing in Dividend Stocks?
One of the most important risk factors is time frame. If you know you’ll need your money in the next year or two, dividend stocks might not be the best choice. The stock market can move unpredictably in any given year. Though over the long run, the market recovers and continues to push higher.
With that said, if you have a long investment time frame – like many retirement accounts do – dividend stocks can be a great choice. A basket of healthy dividend stocks will keep paying investors through any economic cycle.
Some of these companies include Procter & Gamble (NYSE: PG), Johnson & Johnson (NYSE: JNJ) and Walmart (NYSE: WMT). That’s just a small sampling of stable dividend stocks. These companies specifically have done well since consumers buy their products no matter what the market is doing. Consumers will always buy toilet paper, toothpaste, food, etc.
For a larger list, check out these six long-term dividend stocks or these top 10 dividend tech stocks.
Build Wealth Like Warren Buffett
As mentioned, the stock market is one of the largest wealth creators in the world. Yet too few people come along for the ride. Staying on the sidelines made more sense 50 years ago, when barriers to investing were higher. But today, you can invest with less than $100, and many platforms don’t charge trading fees anymore.
In some cases, trading platforms are even offering fractional shares. So for a small investor, it’s never been easier to gain access. You can now share in the gains produced by some of the world’s richest people…
For example, if you invest in Microsoft (Nasdaq: MSFT) or Tesla (Nasdaq: TSLA), you’ll see the same percentage returns as Bill Gates or Elon Musk. Of course, they’ve invested a larger nominal amount, but if their shares are up 10% for the year, yours will be as well.
Another example is investing in Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B). You can generate the same returns as legendary investors like him. And Warren Buffett’s geared toward a buy-and-hold, dividend-based approach.
Overall, I hope this insight helped you answer the question of whether dividend stocks are worth it. If you’d like more insight from investing experts, sign up for our free Investment U e-letter below. It’s packed with useful information.
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