John Heinzl of the Globe and Mail and I agree that dividend investing is something everyone should be doing. It is easy and grows your money with limited risks. In an recent article, Mr. Heinzl wrote about 10 reasons why it is one the simplest and most effective ways for small investors to build wealth. Once you have the wealth, there are many options including keeping most of your money in dividend stocks.
6. Diversification is a Snap – everyone should start with a few companies and let them build up, you will likely be bias and pick them from an industry you know or a customer of. That is good, to achieve further diversification there are many dividend ETFs to choose from and gain greater diversification.
7. Tax Benefits – the wealthy people help write the tax code to fit their type of income. They receive dividends from corporations and have tax credits on the income as opposed to bond and bank interest which has no tax credit.
8. Dividend Growth fights Inflation – after you have bought your dividend companies, the next step is examine if the company increases or expects to increase the dividend every year. There are companies that do and the dividends go up with inflation. If you bought a bond, the same income would be generated.
9. Dividend investing Unhooks you from the Market – it is entirely possible to spend a great deal of time and energy in front of the TV and computer watching how the market is doing. You can learn something along the way. It is also very possible to invest in dividend companies and not worry about the next couple of months of the market. You know when your dividends are being paid, as long as they are being paid, you do not need to worry about your investments. If the market goes down, you have cash to buy; if the market goes up, you have cash to diversify or do something else with it. The trick is follow relatively simple rules when you invest. Is the company profitable? How do they make their money? Can they pay their dividend? Then check off the boxes until the next dividend payment.
10. It is Fun – After you have invested, you really do not need to do anything, but vote at the AGM. The dividends and the power of compound interest, along with long term capital gains increases your wealth with limited effort and that is a good thing.
Linking to dividend paying stocks, in investing let the companies do the heavy work worry about competition; technology both good and bad; you are interested can they execute with their customers and attract new ones. There are many aspects of management to watch, but you do not have to worry until the company is not profitable and there are many signs along the way.
There are more questions than answers, till the next time – to raising questions.