A dividend investment strategy might be something many investors don’t think about. If you’re in search of capital growth than considering how to maximize your dividend income might be way down on your list of investment goals.
Research published by Morgan Stanley reports that more than 40 percent of S&P 500 growth (1930-2012) resulted from dividends. Dividends can make anyone’s portfolio grow, but dividend yields have declined with rising stock prices.
That’s great news if you bought high dividend-paying stocks years ago. If you want to increase portfolio return today, don’t forget about the future to capture relatively higher dividends now. Don’t choose stocks that sacrifice long-term growth potential. Reviewing your dividend investment strategy is one of the easiest ways to increase your portfolio return.
Various dividend investment strategies are available. If you plan to hold stocks over the long-term and you’re in search of capital gains, choosing stocks that consistently paid dividends over the long-term, you might consider buying “S&P Dividend Aristocrats stocks.”
Name-brand companies like Procter & Gamble and Wal-Mart are included on the Dividend Aristocrats list. These companies have paid investor dividends over successive decades, each year. Although stock dividends have outpaced bond yields in the recent past, most financial professionals agree that low-interest rates won’t last forever.
In a low-interest rate environment, investors sometimes worry about reinvestment risk. That’s because the opportunity to reinvest dividends and other portfolio cash flows at a similar rate of return may be challenging:
Reinvestment of dividends can have a real impact on portfolio performance. According to the Wall Street Journal, the return on a portfolio of S&P Aristocrats stocks increased almost 10 percent over a 20-year period!
Because dividend reinvestment can make such a difference in your portfolio’s return, a dividend reinvestment plan (DRIP) offered by each company in the portfolio makes sense.
By enrolling in DRIP plans, you’re managing reinvestment risk because dividends are automatically reinvested in partial shares of stock. There’s no reason to worry about market timing because the DRIP plan automatically buys new shares. You won’t need to worry about the “right price” or the “right time” to buy a stock that’s performed well over the long-term.
It’s simple. Without reinvesting your dividends, your portfolio probably won’t perform as well as it could. Even if everything else in your portfolio is well-balanced, failure to reinvest dividends will cost you:
The compounding power of DRIP plans can be one of the best and simplest ways to grow your wealth. Of course, DRIP plans aren’t a good fit for everyone:
With this dividend investment strategy, an investor can hold a stock for a short time, just long enough to take the dividend.
But, it’s not that easy to implement.
first, the investor needs to know the dividend dates, then he just buys the stock before the ex-dividend date and then sells it on the ex-dividend date or a little bit after.
in that way, the investor will get paid automatically. You need to remember that the investor expectations are to sell the stock at the same price he bought it or above.
Because of the short periods of time the investors are holding the stocks, this strategy is popular with day traders and active money managers.
the Advantages of the Dividend Capture Strategy are that there are lots of dividend-paying stocks, and an investor can find a stock with an ex-dividend date fairly easy.
this strategy doe’s not needed fundamental or technical analysis. It is pretty easy.
But, this strategy has its limitations. Because dividends supposed to reward long-term shareholders, you can see a negative price change on the Ex-Dividend Date to reflect the upcoming payout.
Brokerage Fees can hurt your profits, especially if you are paying a full commission to your broker.
The Bottom Line is:
The dividend capture strategy is for some short-term investors, day traders and active money managers.And those who
And those who seek to begin with this strategy have to do their homework carefully and research deeply for factors such as brokerage costs and taxes before they start, and it’s important to consult your financial advisor.
It’s important to note that I’m not a fan of this strategy because I prefer to invest and not to gamble with my money. But I don’t argue with those who believe in trading.
To own reliable dividend-bearing stocks today and increase current yield, you might also sell covered calls:
Along with a corporation’s finances, it’s important to check any stock’s dividend yield before you make a decision to own it.
Keep in mind that writing calls on dividend-bearing stocks will require you to pay attention to ex-dividend dates. You don’t want to allow a call buyer to capture dividend income if the stock is called away.
According to NASDAQ, selling the covered calls on the day the stock goes ex-dividend may statistically increase your chances of success.
Selling calls when you own the underlying shares is considered a relatively safe way to increase portfolio income.
If you’re a relatively young investor, you might believe that speculating on volatile stocks is a suitable strategy. After all, if you don’t need the money now and you pick stocks that are moving, you can increase capital faster, right?
Making the decision to buy quality stocks that pay dividends is a timeless wealth-building strategy. New investors and those nearing retirement age benefit from choosing higher dividend-bearing stocks with consistent track records:
So many financial products focus on dividends and dividend strategies. It’s important to see that the research shows investors need to look at stock growth prospects, not just the current dividend payouts.
Recent U.S. Federal Reserve reports say that more interest rate hikes are likely in the future. Although dividend-bearing stocks have been viewed as “quasi” fixed income instruments, it’s important to remember that stocks and bonds are different asset classes. Stock prices tend to decline in a rising interest rate environment:
Resources I like and respect on dividend investing that can inspire you to start a journey towards your freedom.
The Balance is home to experts who know what they’re talking about, they’re here to deliver clear, practical advice that will strengthen your lifelong relationship with money so you can earn more, spend smarter, invest well, and build a more secure future.
This guy has a real passion for personal finance and investing. You can follow his investing journey to financial freedom to be inspired and start your own journey.
This guy shares a lot of free knowledge, and really like helping beginner investors.
You can follow his journey and strategy is to invest in dividend growth stocks in order to reach financial freedom at an early age.
Dividata is providing a free and convenient online resource for researching dividend-paying stocks, dividend analysis, and detailed dividend history at no cost.
Information, Tools, And Forms. The DRiP Investing Resource Center Your Location For Dividend Reinvesting Information
These guys are a leading worldwide independent provider of dividend information and data for investment professionals.
DividendInvestor.com is a powerful dividend-detecting resource. It contains the critical, time-sensitive data you need for income investments.
Dividend.com is a financial services website focused on providing comprehensive dividend stock research information, in the form of daily articles, data, and ratings.
Dividend.com offers free content available to the general public as well as premium subscription service.
Here you can find top notch research about dividend strategy investment, so you can do a lot better and successful with your dividend income investments.