Dividend income has served investors incredibly well over the decades especially since low interest rates and rising inflation are presenting a real problem for people reliant on their savings, investments and pension pots.
Dividends Are Paid From Real Cash – That means companies that pay you dividends have to make money in order to put that dividend in your bank account. They are not some fictitious earnings figure created by financial engineers (ie: accountants).
Dividends Are Paid By Strong Companies – You won’t find any one trick pony or hi-tech penny stocks here. Most dividend paying companies have been paying them for over a decade and are staying for the long haul. They are usually the biggest market leading companies that have a competitive advantage and pricing power that allow them to grow sales, cash and dividends year after year.
Dividends Can Grow Through Recessions – This was traditionally seen as a measure of long-term strength and success of a company. Historically, dividend paying companies have outperformed all other asset classes over the long term.
Dividends Can Be Reinvested – When you own a dividend paying share and you reinvest those dividends, your investments begin to work for you. Your money begins to compound and grow at a faster rate, which results in large long term returns.
Dividends Stop Excess Acquisitions – Many management teams like to embark on ego trips by going off empire building and frittering away cash. Dividends help remind management who the true owners of the business are and that they expect a return on their investment.
Dividends Stop Stock Buybacks – While a good way of returning value to shareholders when the company is undervalued, most buyback schemes occur when companies are overvalued, destroying shareholders’ value. Some company management teams also use share buybacks to boost an already overbought share price to help their option schemes.
Dividends Give An Income Without Selling – Most people in retirement have to sell part of their capital gains (or more likely capital losses) in order to fund their lifestyles. Dividends allow you to receive an income on your assets without selling them, enabling your income to grow at inflation beating rates.
Dividends Support The Share Price – Market falling for no apparent reason? Dividend paying companies will have some support as their current yield gets higher and higher until it attracts new investors seeking safety from the onslaught.