Why I prefer dividend stocks

I invest a very large part of my money in dividend stock. About 85% of my money is in my main portfolio that is filled exclusively with dividend stocks. In this article I am going to explain why I chose to invest in dividend stocks. Why I find them to be the best long term investments there is.

But first: Lets look at what I dividend stock really is. A dividend stock is the stock in a company that pay a dividend. A dividend is a cash payout to the owners of the company. Each share owner gets paid a part of the dividend based on how many shares he or she owns. The more shares he or she owns the more money he or she will get. All owners of the same type of share will get the same per share dividend. A company might have several different type of stock. Different types of stock can get paid different dividends. Some stocks might not give you a right to any dividends at all while other stocks might give you the right to an extra high dividend.

Companies does not have to pay a dividend. It is up to the board and the participants of the yearly stockholder meeting to decide the dividend. In reality the dividend is set by the board. It is very rare for the stockholder meeting to object to the dividend. The dividend is almost always approved.

When I and other investors say that we invest in dividend stock than we are usually referring to companies that have a history of giving the share holders large dividends. Companies that keeps increasing their dividends year after year. Theses stocks are sometimes referred to as dividend kings.

Different investors look for companies that offer different dividend payments. I personally try to invest in companies that offer 4% or better although I might sometimes accept 3% if I really believe in the company.

What makes dividend stocks good investments

Not all dividend stocks are good investments. They can be good or bad investments just like any other type of stocks. You need to do you research before you buy a dividend stock. Some dividend stocks can be money traps that can drag investors with them in their fall. It is very important to make sure to not get trapped in a dividend stock that is doing poorly. A company that is doing poorly but keep paying high dividends is a huge red flag as it indicates that the management doesn’t know who to fix the problems. They use money to pay dividends instead of fixing the problems in the company.

With this said. Dividend stocks tend to be larger more mature companies. Companies that do not need all their money to keep growing. Dividend stocks tend to be lower risk investment than other stocks. Lower risk does however not mean “no risk” and you need to be picky when you decide which stocks to buy.

If you choose the right dividend stocks then they will give you a good return on your money year out and year in.

The benefits of dividend stocks for the long term investor

Dividend stocks provide me and other long term investors with a number of different benefits that other types of stock can not. All these benefits are tied to the dividend. Tied to the fact that you do not need to sell your stock to get money from your stock. This allows you to build a portfolio that can give you a comfortable life indefinitely once you have decided to retire since you do not have to sell the stocks to pay your bills. You can use the dividends to do this. The portfolio will provide for you for ever. You do not need to worry to run out of money as long as you live within the means of your dividends.

Another big benefit with dividend stocks if you are a long term investors is that you are less exposed to stock market crashes. In most cases you will still get good dividends during the crash. This gives you an excellent opportunity to buy more stocks at a cheap price and you are not forced to sell stock at a low price.