Good Morning Green Panda Readers. Today it’s time for the next post in our “Investing: The Ins and Outs of Dividends” series. So far during this series we have explored the benefits of dividend investing, why companies choose to pay out dividends to investors, and if dividend investing is better than investing in stocks. Today we are going to take a different approach in this series, today we are going to discuss the times when we should not get into dividend investing. Dividend Investing is not for everyone and before we choose to invest in anything we should be aware of all the pros as well as the cons.
There are several advantages to dividend investing, such as the regular dividend payouts as well as the opportunity to invest in large companies with a history of stable growth. However dividend investing (directly through Stocks or indirectly through a Mutual Fund) is not for everyone. There are risks involved when we choose to invest in dividends and sometimes these risks do not outweigh the costs and rewards.
Dividend Investing is sometimes considered to be high risk investing because technically we are investing in the stock of an individual company which is considered to be a high risk investment. Any time that we invest in one stock, one mutual fund, or one bond we are putting all of our investment eggs into one basket. This is considered to be a high risk investment because if we only own one investment and the value of that investment declines we don’t have any other investments to offset our losses. This is why it’s always best to have a diversified investment portfolio, because if one investment looses value another one of our investments could gain a profit.
Some other people consider dividend investing to be a low risk investment. Even though we are investing in the stock of a company which is considered to be a high risk investment we are investing in large companies with a proven history of growth and who have a history of paying out dividends to their investors. Therefore dividend investing can be considered a low risk investment because of the stability as well as the regular income stream.
Dividend Investing means that we are investing in the stock of companies who pay out dividends to their investors or if may mean that we are investing in a Mutual Funds which invest in a portfolio of company stocks that pay dividends. Either way we are purchasing stocks directly or indirectly (through a Mutual Fund); therefore there is always an advantage to buying the stocks (or Mutual Funds) when the prices are low. Very often Preferred Shares offer a guaranteed dividend payout but the actual unit price of the share is never guaranteed. Therefore if we can buy the stocks at a very low price per unit we can benefit from the dividend payout as well as the capital gain profit if we should ever sell our stocks and make a profit on the value of the unit price.
Dividend Investing is not for you if market fluctuations and changes in the value of your investments make you nervous in the short term. If we are only trying to time the market and get in and out to make a quick profit then dividend investing is also not for you. Dividend investing provides a steady income stream which is definitely beneficial over the long term.
Be sure to check out the previous posts in our “Investing: The Ins and Outs of Dividends” series:
New Investment Strategies for the New Year
Why You Should Consider Investing in Dividends
Why Do Companies Pay Dividends
Are Dividends Better Than Stocks?
Photo by Candie N
Tahnya is 30 years old and lives in Montreal Quebec. She graduated in 2005 from Concordia University, and she currently works for a major International Financial Institution. She recently launched http://www.mediamadam.ca/. You can follow her on Twitter @TahnyaP.