A lot of people have a tough time trying to make money in the
stock market. They find that it can be quite difficult to beat the
market. Instead of trying to outsmart a lot of professional investors,
you can add some certainty to your investments portfolio. One of the
ways that an investor can ensure themselves of a positive return when
investing is to buy stocks that pay investors a dividend. Let's look at
the three reasons why dividends are a hit with investors.
Cash dividends offer positive returns
Dividends
offer a guaranteed rate of return that investors can count on. You
never know if a stock is going to rise in value or decline in value
because that always depends on the performance of the market. For
example, during bad markets a stock can plummet causing you to lose much
of your capital appreciation. You do however know that a company will
pay its dividend once it is declared because you are entitled to receive
the distribution. You can offset some of the losses during these bad
periods with dividends.
Cash dividends provide income
A
stock that pays a dividend will reward investors with a cash stream that
they can count on. Cash income is pretty important to those that live
on a fixed income because they need to know that they will receive money
on a regular basis. That is why dividends are so popular with both
senior citizens and people that have retired. They know the long term
money making power that dividends have on a monthly budget.
Cash dividends offer stability
It
has been proven that companies that pay a dividend are a whole lot more
stable than companies that do not. That is because their share prices
drop a lot less than other stocks when the market is falling. Investors
perceive of these stocks as safer because they know that a cash payout
will be coming soon. If a company can afford to continually pay cash
year after year, that is a sign of a strong company with a whole lot of
cash flow.
You can tell from the list above why investors find
dividends to be such a great addition to any portfolio. Dividends that
are paid out either quarterly or annually by a company can help to
increase the internal rate of return for an investor by a few percentage
points. This can mean the difference between making money in a given
year or losing some cash that year.
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