Dividend Yielding Stocks Are More Exciting Than Most Think

Through the 1990's and the early 2000's dividend stocks were often thought of as lousy investments. Most people thought, why should we invest in a nice mature company that is paying a dividend when we can invest in a fast up and coming technology company? We all know the difficult lessons that were learned as the technology bubble burst, but as someone who has a pulse on the market as a whole and investor sentiment, I believe dividend yielding stocks are still under appreciated.

What is a dividend anyways? A dividend is a part of the earnings from a certain corporation that is given back to shareholders, usually on a quarterly basis. The characteristics of a corporation that is willing to pay out a dividend to shareholders are a major plus when it comes to making an investment. Typically, companies that pay out a dividend have a large amount of cash on their balance sheet and strong free cash flow. These companies often have a nice economic moat as Warren Buffett would say, which means they have a continuous competitive advantage over their peers.

Consider that some of most consistent dividend yielding stocks pay as much as 4% on annual basis just to own their stock, and then also remember that the average long-term appreciation of an investment is stocks is around 8%. The dividend stocks yield is capable of multiplying your earnings power by 1.5 times. Additionally, the power of compounding returns on that dividend yield can work wonders in your investment portfolio.

One of the biggest benefits of a dividend paying stock is the extra stability that it brings. In a down market a solid dividend yield definitely supports the price of the stock. The option of reinvesting your dividends in the company stock is also a nice way to lower your overall cost of owning the stock, since this method comes without a charge.

It is important to remember that not all dividend yielding stocks are created equally. I strongly suggest investors to look for solid brand names who have consistently raised their dividend payouts each year. Sometimes you will find some artificially high dividend yields in a down market, and the truth is these dividends usually end up being canceled because of financial difficulty. The highest of dividend yields are a bit suspicious, but those companies that yield a solid 3 or 4% annually that have a strong balance sheet can be terrific!

The next time someone tells you that a dividend yielding stock is boring, just remember what it could do for your bottom line. Dividends are powerful and you would be wise to have some dividend yielding stocks in your portfolio.