Dividends aren’t just for Warren Buffett and retirees. Dividends have the power to support your goals of becoming independently wealthy. Here are 3 reasons why.
- Buy why dividends? You’re too young to be an income investor!
- Don’t you know growth stocks are better suited for young people?
1. Dividend paying companies usually have excess monies available
Ironically, when a company dishes out billions of dollars to investors annually in the form of dividends, you might consider they’re making too much money. In other words, their profits are so juicy that they’re free to distribute excess cash to one of their most prized possessions: you, the shareholder. Target (TGT), [for example,] has been paying dividends every single year since 1965 raising their dividend annually for nearly 45 years. Now that’s commitment.
2. Dividend paying companies are usually here to stay
Sure, there are a few exceptions, but for the most part companies with long, sustainable histories of paying dividends [such as] 3M (MMM) [for example]…are more reliable than younger companies… You can think of it this way: who would you trust to show up to work tomorrow? Walter, the 56 year old janitor who hasn’t missed a day in 30 years or Slater, the 22 year old hotshot lawyer who just graduated from an Ivy league and landed a job at the firm? Reliability is often a difficult thing to come by in this day and age.
3. Dividend paying companies often have an excellent risk/reward profile especially when dividends are re-invested
Not a day goes by where I don’t hear someone refer to the last ten years as “the lost decade.” Well excuse me if things didn’t go well for growth investors, but owners of quality, dividend-paying companies, such as Johnson and Johnson (JNJ) actually fared quite well…
Though not necessarily as “sexy” as growth investing, take a look at the world of dividend investing and make sure to keep an open mind. I did, and what can I say but “I’m hooked!”
The comments above are edited ([ ]) and abridged (…) excerpts from the original article written by Pey Shadzi.
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