5 reasons to invest into dividend paying stocks

Robert Kiyosaki states that we should accumulate assets insteads of liabilities.  Assets are things that will generate income for you and investing into dividend paying stocks falls into that category.

With dividend paying stocks, you not only profit with the capital gain of the stock, you also profit with the dividends payout from the stocks.  With the dividends payout, your money sum in the investment goes down and you are risking less money with the investment, while potentially still able to profit with the same capital gain.

Fool.com has 5 more reasons why investing into divident paying stocks is a good choice in building up your long term wealth.

  • They’re beating the market. According to Standard & Poor’s, for the first seven months of 2006, dividend-paying stocks returned 4.3%, compared with -3.3% for non-dividend payers.
  • They’re low risk. Since the companies pay out cash, investors are more willing to hold dividend stocks through bear markets. Hence, they don’t fall as far or as quickly as non-dividend stocks. These stocks become a magnet for investors seeking security.
  • They earn much better yields with lower taxes. Thanks to a recent change in the tax law, dividends are now taxed at only 15%. Compare that to interest on your savings, CD, or money market account that is taxed as ordinary income — up to 35%! Standard & Poor’s estimates this change should save investors more than $100 billion through 2008. Much of this will be invested back in dividend stocks.
  • They help you avoid the Enrons of tomorrow. Dividends don’t lie. For example, between 1997 and 2000, Enron’s “earnings” rose 69% but dividends rose only 9%. That’s a sure sign that something fishy was going on. Paper profits can fool analysts but hard cash can’t be faked.
  • By reinvesting dividends, you “dollar-cost average” and get the power of compounding automatically. Reinvesting dividends improves your portfolio’s long-term returns by buying more shares when the price is low and by helping your profits earn more profits.

Dividends aren’t just for retirees. They are for anyone who wants to amass great wealth with low risk.  

dividend stock

Dividend stocks are the best way to follow Warren Buffett’s famous rules:

Rule No.1: Never lose money
Rule No.2: Never forget rule No.1

Buffett always seeks out companies in real industries, making real products and real profits. More times than not, these are dividend-paying stocks.

If you are like many investors you are still recovering from the tech wreck. You are painfully aware that it takes a 100% gain just to break even after a 50% loss. That’s why you want to avoid losing money at all costs.

Dividends are the best way to find solid stocks. They are the best way to keep your portfolio growing during tough times. And they are the best way to compound your wealth over time.