While buying and holding stocks for the long term is a smart investment strategy, you put a lot of risk on the table by not buying dividend paying stocks. Here’s why you should only invest in dividend paying stocks:
Your Money is Tied Up for a Really Long Time – When you make a long term investment in the stock market, your hard earned money is tied up for a really long time. Essentially you earned x number of dollars and decided not to spend them for so many years. Dividends give you a steady return of investment in cash every quarter as a reward for investing in the company’s stock.
Paying Shareholders is a Primary Concern – Whenever the CEO makes a decision, paying shareholders will always be in the back of his head. This means that the finances of the company have to be in top shape. Non dividend paying companies prioritize the growth of the company instead of a return of value to the shareholders. You don’t need to necessarily invest in a high yield dividend stock. Just a stock that pays a dividend period completely changes the mentality of the corporation.
After Bubbles and Recessions, Dividends Make most of Your Income – Throughout history, the stock market has gone through bubbles and recessions and will continue so. Every 10 years or so, you can expect a significant market correction that would wipe your investment out if you weren’t prepared for it. Fortunately dividends provide a steady capital return over time. In the long run the returns you make from dividends alone will offset the risk of stock market corrections. If you reinvest the dividends, they can even provide more return than the stock itself.
Dividend Reinvestment Allows You to Get More Shares – Without investing your personal money, you can use dividends to buy more shares and steadily increase your position overtime. This makes financial sense, because a larger stock position will give you more growth overtime. More shares also equals more dividends.