Dividend Investing: Investing in a Shaky Market (Passive Income)
One of the best ways to invest is through Dividend investing. With all the unforeseen ups and downs that 2020 has brought, dividends have held their own.
While some industries have not done well, others have done really well with paying their shareholders, and as companies continue to grow the more income investors have.
According to Ned Davis Research, “the firm said in a note on Tuesday that dividend stocks performed in an unusual way during the coronavirus recession, trailing non-dividend payers during both the market decline and the rebound.”
If your an investor that seeks a steady return as you own stocks in a company, then dividend investing can be for you.
Companies have the option of using their profits to improve or develop their company or they can return profits to their shareholders through dividend payments.
Similar to a savings account, dividends will hold a dividend yield that the company will pay you for owning a stock with their company. Because the company’s board of directors decides how much they want to give back, the company’s dividend yield can change frequently.
However, according to CNBC, “normally dividend stocks are a safe haven during times of a recession and market volatility, but in this case, the coronavirus pandemic hit key dividend players like REITS and banks while rewarding internet stocks which don’t pay a dividend.”
Dividends remain a key element to boost your investment returns, however, there are disadvantages and advantages before you begin earning dividend income.
Investors find more reward in dividend income when they reinvest to buy additional shares. It helps your portfolio as it has a diverse set of assets and it entitles you to more income in the future.
It is also good to assess an organization’s success by comparing earnings to dividend payments. This usually means choosing companies that are already established.
However, while it may appear to be a good investment, if a company fails to deliver, you have to know when to act and when to sit tight, which for some investors may be difficult.
While it’s hard to determine the growth of a company, it is easier to determine how well a company has done within the last few years to determine your growth with investing.
If you already invest through an online broker, it is possible that you already own dividend stocks in some way.
According to Forbes, “About 77% of S&P 500 stocks pay a dividend.”
Dividends are usually for more mature companies who build their growth over time compared to fresh business who will invest their profits back to research and development.
Investors should look for companies that have a history of stable cash flow especially in the midst of a pandemic.
There are also substantial tax benefits associated with dividend investing. Dividends that are classified as qualified are taxed much lower than those are ordinary. Those that are classified as ordinary are taxed as a regular income.
Because dividend is determined by the company, it poses a risk for investors. For example, some companies pull away from their dividends during the pandemic.
However, diversification should always be considered if your an investor. More diverse companies and sectors pose less risk. Without diversification, you’re exposing yourself to more risk than investing already involves.
According to Investopedia.com, “The key lies in knowing how to evaluate stocks to pinpoint those that offer the strongest returns while minimizing risk and maintaining diversity.”
It pays to do research on companies with high percentages to evaluate the companies growth rate and why it would decipher compared to other groups.
Dividends can potentially increase an investor’s portfolio for long-term growth, however, it is important to determine both the disadvantages and advantages associated with dividend investing.
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