This week in the investment series, we’re going back to college, namely we’re looking at a college graduate’s best options when it comes to investing in the market. An option overlooked by many young investors is dividend investing. Some investors feel that dividends are great options for those nearing or at retirement, but they can be a choice for college graduates as a part of their portfolio.
Some early retirement fans employ dividend investing as a big part of their exit strategy.
Looking at Dividends
In case you’re not familiar with dividend invest, it’s choosing to investing in companies that set aside a portion of their quarterly profits to pay stockholders.
Some reasons to invest in dividend paying stocks include:
- Passive Income Source: As long as you owe the stock, you receive quarterly dividend payments, which is another source of income. If you reinvest your dividend payments, over time you can build quite an income stream for yourself.
- Tax Advantages: Dividend payouts are typically taxed lower than interest income. Less taxes mean you keep more of your money.
- No Need to Constantly Trade: Usually stable companies pay dividends, which means you don’t have to panic and worry about the stocks fluctuating.
You may have other reasons for investing, but I think having another income source is a smart move, especially when you’re young.
Investing Options for Your Money
Where can you find dividend investments? If you’re looking for companies with a proven track record with dividends, consider the Dividend Aristocrats. These are companies on the S&P 500 Index that have consistently paid dividends (and increased them!) over the past 25 years.
You can either invest in the companies themselves (here’s a helpful list) or you can use an ETF (like the SPDR S&P Dividend ETF (SDY)) to grab them all. If you want to reduce the hassle even more, make sure you set up anautomatic investment contribution with your banking and investing company.
You still have to take care of your due diligence when it comes to investing in these companies, but the ability to offer dividends over two decades (through booms and recessions) can be attractive to many investors. When looking at possible investments, you may want to look at the following:
- Dividend yield & Dividend payout
- Dividend Growth
- Dividend Payout Ratio
Your goal is include solid and consistent dividend payers into your portfolio for long term growth. You also want to make sure you set up your dividends to be reinvested to increase your gains.
Thoughts on Investing
Investing isn’t just for the rich. If you’re willing to hustle now, it can pay off big in the long run. How many of you are investing (not just for retirement)? What’s your investment strategy? If you’re just getting started, don’t forget to check out my previous posts:
- Investing Basics- Get Started!
- What’s Your Investment Strategy?
- What are Some Investing Risks Worth Taking?
- What are Some Investing Risks Not Worth Taking?
- A Personal Story of Risk Taken
Please share your tips in the comments!