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They could be a good addition to your portfolio.
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Building an investment portfolio is really a work in progress. And when you’re first starting out as an investor, the idea can seem daunting.
When you put money into stocks, you’re not guaranteed they’ll gain value over time. But that’s obviously the hope — otherwise, what would be the point of investing?
But in some cases, you can make money on your stock holdings even if their value isn’t increasing. That’s because some stocks have a practice of paying dividends. And if you’re looking to add stocks to your brokerage account, you may want to focus on dividend stocks.
In fact, in a recent podcast episode, financial guru Suze Orman spoke about how she’s a fan of dividend stocks. And you may find that owning them offers you some nice benefits.
It’s good to get paid
Companies that pay dividends to shareholders aren’t required to do so. But stocks with a long history of paying dividends tend to uphold that practice, and some even increase their dividend payments over time. So it’s not a bad idea to add some dividend stocks to your portfolio, especially if you like the idea of getting extra money in your brokerage account on a regular basis.
In fact, dividend stocks are a great asset to own during periods when the stock market is down on a whole. Let’s say your portfolio was worth $2,000 at the start of 2022, only thanks to general market volatility, your balance is now $1,500. Granted, that’s nothing to panic over, because stock values could easily come back up in time. But wouldn’t it be nice to have a way to offset that $500 loss?
If you own dividend stocks, you might receive payments into your brokerage account on a quarterly basis. And those can help offset losses you might otherwise be seeing.
How to manage your dividends
When you receive dividends, there’s always the option to cash them out, take the money, and run. But a better bet, if you don’t need the cash, is to reinvest your dividends. That could help your portfolio gain a lot of value over time. In fact, many brokerage accounts let you set up an automatic dividend reinvestment program so you don’t even have to think about what to do with that money when it comes in.
Be careful with dividend stocks
There’s lots to be gained by owning dividend stocks. In fact, Orman urges people who have lost money in the stock market this year not to worry as much if they’re enjoying a steady stream of income from dividends.
That said, when choosing stocks to invest in, you don’t only want to look at dividends. You’ll also want to make sure you’re investing in companies that are financially sound. It’s easy to get caught up in the lure of a generous dividend, but don’t let that lead you to sink money into companies that don’t have a lot of long-term growth potential.
Ideally, you should be putting money into businesses whose stock value is likely to increase over time. And if you happen to get paid along the way, even better.
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