One of the questions that I have been thinking about more often as of lately is whether or not to start investing in dividend stocks. Part of it is to diversify my investments a little further. Currently, I have most of my investments tied up in 3 different retirement funds. It wouldn’t hurt to split this up a little bit further. While I plan to also incorporate real estate investing in the near future, that seems far away and failing to utilize my money now could be missing out on an opportunity to take advantage of compound interest.
Dividend stocks are talked about all over the internet because they offer something that traditional stocks don’t. The unique wealth accumulation structure of dividend stocks make them attractive to investors. Yet, I can’t help but wonder that if they are the better option, why everyone doesn’t utilize these to fill their investment portfolios?
A dividend is a payment or compensation made by a company to its shareholders. In other words, those who own stock in a particular company will receive this dividend on a regular basis. They are attractive to investors for two reasons. The first is a little diversification within the stock itself. Not only do you have the option of increasing the value of your holdings as the stock value increases, but you also receive a regular dividend payment. This seems to be fit both approaches to retirement. For those interested in building an income stream (and see retirement as building passive income to replace their day job), the dividend aspect becomes particularly attractive. For those wanting to build up a nest egg to live off of, it also accomplishes this with both aspects. It seems to be a win-win opportunity.
To confirm the reason why dividend stocks are so attractive, Thomas Kenny writes on About.com,
“High-dividend stocks tend to outperform the broader market over time. From January 31, 1972 through September 30, 2010, U.S.-based dividend-paying stocks returned an average 7.1% annually, far exceeding the 1.5% average annual return for stocks with no dividends. This trend continued through 2011. Additionally, more than half of the total return of US equities from 1930 through the end of 2010 was the result of dividends rather than price appreciation.”
Thus, not only does the basic payment structure of dividend stocks seem more intuitive to investors, it also has a great track record.
Since dividend stocks seem to live up to the hype, I am half-way tempted to open up an account and get started. Yet, I don’t want to jump in to quickly. I want to do my homework first. That is why I am going to do everything I can to learning the in’s and out’s before jumping in to the deep end. There are many great resources out there – some free and some paid subscriptions.
One example is Dividend Stocks Online. From doing some investigation, it offers a great wealth of information for its members. It helps categorize the dividend stocks so that you can be better informed when selecting which stocks to select. While I’m not at the point of committing to investing right now, I do know that I will consider services like this one as it could mean a difference of tens of thousands of dollars in returns over decades of investing.
Have you thought about investing in dividend stocks? Why or Why not?