DIVIDEND STOCK INVESTING 📈 Pro’s and Con’s of Dividend Stocks
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What are the pros and cons of owning dividend stocks? I had someone reach out to me and ask me to explain this. I only own one dividend stock and it is a utility stock. I also receive dividends from my mutual fund, which includes dividend stocks in the blend. So, if you are looking to invest in dividend stocks what are the pros and cons of doing this?
PRO: Shareholders can take a consistent income from the stock market.
CON: A dividend can be increased, reduced or eliminated at any time.
PRO: Profitable companies frequently increase dividends.
CON: Companies that pay high dividends are usually old school industries and utilities and this does not provide adequate diversification.
PRO: More stable companies have dividends and this means significantly less volatility.
CON: Faster growing small cap stocks with more upside potential rarely pay dividends.
PRO: Dividend stocks tend to hold up better in a down market because most investors are in it for the long term and understand market correction.
CON: Lag in performance and growth compared to many other stocks.
PRO: They are more tax efficient than bonds or other ordinary income because they are taxed at a lower rate.
CON: Riskier than a high quality bond.
PRO: Investors can be paid in two way; stock price and dividends.
CON: High dividends can be misleading to investors.
PRO: Dividends allow you to hedge your bet. The stock can fall 4%, but if it pays 3% in dividends you have only lost 1% on your investment.
CON: Tax rates for dividends can change at any time.
PRO: Allows you to take advantage of compounding.
CON: Slow growth, long term investment (may be a con for some, and a pro for others).
PRO: Dividend stocks are inflation resistant because as prices rise the profits of a company rise as well. Dividends are based off company profits so the dividends rise.
There you have it, the pros and cons of dividend stocks. I think they are a good investment for someone who is looking to get their feet wet in the stock market without getting overwhelmed. However, for many of us they just don’t offer much appeal.
Dividend Investing! – Dividend Stocks!
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THE ADVANTAGES OF DIVIDEND STOCKS
THE DISADVANTAGES OF DIVIDEND STOCKS
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments.