Leading off
Investing can be fun at first, but also very stressful; especially when you see those negative red numbers when your portfolio is down. The important thing is to stay the course and continue adding coal to the fire for a long-term investing strategy. Having a sensible investing strategy with discipline and consistent contributions will lead to a successful long-term investment portfolio. My favorite type of investments are the dividend stocks. I love dividend stocks for a number of reasons including regular positive reinforcements, long-term goal motivation and passive income streams.
What is a dividend ?
A dividend is a payment made by a corporation to its shareholders as a distribution of profits. When a corporation generates revenue, it has an option to share the profits with its stockholders or re-invest that money and choose not distribute a dividend. If a company does choose to distribute dividends to its shareholders, they can issue cash dividends or shares of stocks.
Cash or stock dividend
Cash dividend advocates would argue that a cash dividend imposes discipline on the corporation and prevents companies from reckless behavior while sitting on a surplus of cash. Cash dividends that get re-invested get rewarded with a greater share of future company profits.
Those who receive stock dividends cannot increase their ownership in corporations without spending additional funds to acquire more shares. Stock dividends get distributed when a company issues new shares to stockholders in some proportion to the shares outstanding.
In my opinion, cash dividends gives investors a strategic advantage over those investors who do not receive a dividend.
Benefits of cash dividends
Cash dividends are a nice self-reminder that you are doing the right thing and investing. I like nothing more than checking my brokerage account and seeing the list of dividends I received that month by simply investing in a high dividend stock. It is a positive reinforcement that I am doing the right thing for myself and my financial future by contributing to my investment portfolio.
The benefits don’t stop at positive reinforcements, but as I continue to contribute additional funds into my portfolio holdings, I climb closer to my personal investment goals. The higher I climb towards my goals, the larger my dividends will grow as compounding interest takes effect. It’s a double positive. As my dividends compile over time, my overall portfolio grows like a snowball rolling down a mountain, getting larger and larger, stronger and stronger over time. The earlier you start investing, the more time your investment collects compounding interest and the more your portfolio grows (passively).
As my principal investments grow in size with the help of compounding interest, my dividends grow larger as well. My passive income streams will grow as a result of consistent contributions to my dividend investments. There is no work, no heavy lifting, nothing but collecting my dividend payment from my holdings. It is a thing of beauty and the most underrated money making vehicle in the world.
Where to find dividend stocks?
Dividend stocks are all around us. From mobile phone carriers AT&T and Verizon, to coffee companies Starbucks and Dunkin. Some of the best run companies in America will actually pay you to buy their stocks! By doing some research into some of your favorite brands you can find strong companies that will literally pay you to be a shareholder!
If you are a beginner looking for consistent dividends, an ETF (Exchange-Traded-Fund) that tracks the S&P 500 is a good starting point. Vanguard has great ETF options that are strong building blocks to an investment portfolio that produces consistent dividends for their shareholders.
Plant the seed, add water, sunlight (and money)
Treat your investment strategy like you are planting a seed and you will receive the benefits of your initial investment years to come. By planting the seed and starting your investment early, you will build the foundation for your investment portfolio. Dividend stocks are useful to create passive income through diligent investing.
“Someone is sitting in the shade today because someone planted a tree a long time ago.”
- Warren Buffett
The more money you continue to contribute to your holdings, the more money you will receive back in dividends. You won’t notice the immediate benefits of consistent contributions to your portfolio, but with discipline and patience it will pay off. Instead of trying to get rich quick or find the next big winning number, remember that dividend stocks are consistent when you are consistent. Consistent contributions to your portfolio will pay off exponentially in the future.
How to get started
The quickest and cheapest way to get started is by using a free trading app like Robinhood to get your feet wet. This gives beginners the opportunity to start investing with no minimum investment and zero transaction fees. The most important thing is to start now. The sooner you start investing, the sooner you can see the beauty of compounding interest. Financial Freedom is in the distance if you are willing to commit to the long game. Long-term investments are boring and slow, but they work over time. All it takes is patience and discipline.
Please do not interpret any of this content as direct recommendations or investment advice about how to trade stocks. Feel free to reach out to get put into contact with a Certified Financial Planner to learn more about investing and how to get started.
If you have any questions, comments or would like to submit an article, please send an email to themoneymailbag@gmail.com.
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