Is Dividend Investing Worth It Right Now?

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It’s a good idea to invest in dividends, but those payments shouldn’t be the only thing you look at. Read on to learn why. 

The whole purpose of holding stocks in your brokerage account is to make money over time. Please pay attention to that last bit, because it’s not a good idea to buy stocks with the intention of selling them quickly and making a fast buck. Rather, it’s smart to load your portfolio with quality stocks and hold them long enough to appreciate in value.

Now some investors prefer to own stocks that pay dividends on a regular basis. When a stock pays dividends, it means the company is sharing some of its profits with its shareholders rather than keeping all of the money to put back into the business.

Not every stock pays a dividend. And not every stock that pays a dividend will continue to do so. But owning dividend stocks gives you yet another way to make money on top of share price appreciation.

That said, is it worth it to chase dividend-paying stocks? The answer is, it depends.

It’s more about finding quality businesses

When you collect dividends as a stockholder, you have options. You can take your dividend payments and use them to pay bills, whether it’s food, rent, or your credit cards. Or, you could opt to leave that money in your brokerage account, reinvest it, and use it to grow even more wealth over time.

As such, when you own shares of a stock that pays dividends, you’re really getting a bonus, so to speak. And for that reason, it’s worth holding dividend stocks in your portfolio.

That said, when deciding whether to buy shares of a given stock, its dividend (or lack thereof) should not be the first thing you focus on. Rather, the first thing should be the quality of the business itself. If it’s a company that manages its cash well, has a reasonable amount of debt, and has a lot of growth potential, then it may be a company worth putting your money into. If it happens to also pay a dividend every quarter, great.

But one thing you don’t want to do is buy stocks just because they’re paying a large dividend. Companies are not contractually obligated to keep paying dividends, so that practice could stop at any time. And in that case, you might be left with a stock that doesn’t offer you so much financial upside.

In fact, if you buy shares of a not-so-great stock for the dividend alone, what you gain in the form of those payments, you might lose in the form of limited share price appreciation. So it’s important to make sure you’re getting quality shares regardless of the dividend at hand.

Set your priorities

If you’re looking at two comparable businesses to add to your portfolio, and one pays a dividend and the other doesn’t, then sure, you might as well go for the dividend-paying stock. But generally speaking, you should treat dividend payments as a bonus — not the basis for your investment choice.

Although there are more than 60 Dividend Aristocrats trading today — companies that have increased their dividends every year for at least the past 25 — the stocks that fall into this category aren’t necessarily the most appropriate ones for your portfolio. So as long as you pledge to make dividends a secondary objective, there’s nothing wrong with investing in them right now.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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