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Dividend this and dividend that. You’ve been hearing about dividend stocks for a while now. What are they and why are they important? Are they suitable for you?
Let’s find out by reading this article
together, shall we?
What Are Dividend Stocks?
As the name suggests, dividend stocks are
stocks that pay dividends. Let’s try to break this down a bit for you.
When you own a company and the company
starts making cash profits, you are entitled to the profit, right? This profit
given to you is what we call a “dividend.” The dividend is simply a part of the cash
profit of a business given to its owners.
When you buy a stock, you are a part-owner
of the business. Did you know that? If yes, then you should not be surprised
when the company gives you back some of its profits.
The takeaway point here is that dividend stocks are stocks that pay either high dividends compared to other stocks or dividends more regularly than other stocks.
3 Reasons Why You Should Go For Dividend Stocks?
1. Fighting Inflation
In the world of investment, anything that
gives you more returns is advantageous, as you are more likely to beat
inflation. Dividend stocks are still stocks nonetheless. This means that they
will still give you returns by increasing their prices.
Just imagine you bought a stock at 2 per
share but it is now 5. This is like a 150% increase in the stock returns. Now
imagine if the stock gave you a few kobo extra in dividends. When you are the
dividends, you’ll see that you indeed earned more.
2. Passive Income
It does not matter if you have millions or
not, everybody loves it when they get money they did not work for. If you are a
fan of passive income, go for dividend stocks.
If you are a passive investor, go for
dividend stocks. Do you know your investor type? You can get the best stocks using our stock recommendations feature. Sign up on the Assessworth
platform to see some recommended stocks for you.
3. Indication of a Strong Company Health
Remember, dividends are paid from a company's excess cash profits. This means that when a company pays dividends, it has cash profit and is in good hands (all other things being equal).
If the company is indeed in good hands, its stock will be in high demand, meaning that its price will go up. This is one reason why dividend stocks are in high demand. As an investor, you
need to be sure that your investment is in good hands, right?
3 Things To Consider Before Investing in Dividend Stocks
1. Growth Stocks Do Not Pay Dividends
Growth stocks are stocks with prices
growing at a faster rate when compared to the market. These stocks are usually
for fast-growing companies such as Tesla.
When a company does not pay dividends, it
does not mean that the company is not making a profit. It can mean that the
company has decided to reinvest its profit back into the operations of the
company.
When investors analyze the company and see
that the upcoming projects have potential, they rush to buy the shares of the
company. This is why the company price grows at a faster rate than other
companies.
2. You Need a Lot of Shares to Gain From Dividend Stocks
Companies pay their dividends per share.
Therefore, what matters is the number of shares that you have. For example, if
you bought 200 shares of a company for ₦1000 and 5 shares of another company
for₦ 5000, what matters here is the number of shares.
The stock with the higher share price will
most likely pay more in dividends. However, someone having more shares than you
do will get more dividends than you.
The take-home point here is that if you
intend to buy a stock because it is a dividend stock, you should buy a lot of
shares.
3. Compound Your Wealth By Re-Investing Your Dividends
When you receive dividends, what do you do
with it? Our advice to you is to reinvest the dividends. When you reinvest
dividends, you get more shares and thus more dividends later. This means that you
are compounding your wealth.
Our Secret Strategy To Maximize Your Dividend Stock
Returns
Yup, we’ve got a secret strategy that we’d
love to share with you. This strategy can potentially help you earn more in
returns from dividend stocks. However, note that this strategy is best for
active investors, not passive ones.
If you are interested in learning our
secret strategy, sign up on the Assessworth platform and indicate your interest
using the form on the “Contact Us” page.
Conclusion
Dividend stocks are good stocks and you
should go for them if you are the type of investor that will benefit from
getting dividends regularly. However, to increase your returns, consider
reinvesting the dividends.
You should also ensure that the particular
stock is suitable for you, even if it’s a dividend stock. To know if a stock is
suitable for you, click on the “Should I Buy This Stock” button on a page of
the stock after searching for the stock on the Assessworth platform.
