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There’s a reason dividend stocks are a favorite investment of mine.
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The great thing about owning stocks is that in time, their share price has the potential to appreciate in value (especially if you hang onto quality stocks for many years). That gives you a prime opportunity to sell your shares at a higher price than what you paid and walk away with a profit.
But share price appreciation isn’t the only way to make money in the stock market. If you own stocks that pay dividends, you have a prime opportunity to score some extra income along the way.
Now, not all stocks pay dividends. But it’s estimated that more than 80% of the companies that comprise the S&P 500 index pay dividends to shareholders, according to Titan Global Capital Management.
To be clear, paying dividends is not a requirement. Publicly traded companies can opt to take their earnings and reinvest that money in their respective businesses, or share some of the wealth with stockholders. Those that opt for the latter will pay dividends, and they might even increase their dividends over time (or not — the choice is theirs).
Meanwhile, I own a number of dividend-paying stocks in my brokerage account. And here’s why that works out really nicely for me.
1. I get extra money without having to earn it or do extra work
As a freelance writer, the more hours I work, the more I get paid. But boosting my income often means sacrificing precious downtime (and, in many cases, much-needed sleep). The great thing about dividend payments is that I get the money without having to do any extra work — other than researching those stocks initially to determine whether they’re a good fit for my portfolio.
2. I get more financial flexibility
There are months when my bills are higher than expected — even if I’m doing my best to spend cautiously. The awesome thing about collecting dividends is that I can cash them out when I need to and use the money for expenses like food and medical bills. That means not having to raid my savings account when I don’t want to.
3. I get an opportunity to grow my portfolio without having to contribute more of my own money
The more cash I pump into my brokerage account, the more money I have to invest with. It’s pretty simple. But freeing up cash to invest isn’t always easy, especially when my bills end up increasing through no fault of my own (thanks, inflation). That’s why I try to make a point to reinvest my dividend income. It basically feels like getting free cash in my brokerage account I can use to grow even more wealth.
There are plenty of quality stocks you can buy that don’t pay investors a dividend. But it pays to research that companies that do pay dividends and see if any are a good fit for your portfolio. You might benefit from that extra income stream, as well as the opportunity to reinvest your dividends to grow your portfolio through the years.
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