When it comes to passive income, dividends will be one of the most important sources for us to generate money. In this article I collected five reasons why I love dividend investing.
1. It is a stress free way to invest in the stock market
If you get stressed because of dividend investing, you should look for the reason inside yourself. Once you selected the stocks for your portfolio, you don’t need to spend too much time on managing it. You’re not buying anything for a short term. If you buy an individual stock, the reasons behind your purchase should still be valid in a couple of months or years.
There are companies out there that not only pay dividends for decades, but have managed to increase their dividends every year for over 25 years. These are called the dividend aristocrats; you can find the 2017 list of these companies here.
Do you want an even less stress free way of investing? If you don’t want to worry about selecting individual stocks, there are some great ETFs out there that could also serve as dividend investing vehicles. I have collected some of these ETFs for dividend investing.
2. You have the control
You can always assign a professional to manage your finances. Nevertheless this always comes with a cost, which over the years. Even selecting a costly ETF by yourself can have negative impact on your returns. You can read this related article about the importance of expense ratio.
In addition, assigning investment advisers or buying products from banks has another possible danger. They might recommend products to you for which they get commission for, and not necessarily the ones that are in your best interest.
By dividend investing you have full control. Plus the only expenses you will face with are the transaction fees when buying stocks.
3. It provides continuously growing passive income
As already mentioned before, if you select stable companies to your portfolio with safe and continuously growing dividends, your income will grow over the years no matter what you do. In addition, if you keep on adding to your investments, the passive income you will generate will expand exponentially. Building your own financial machine is realistic for everyone no matter how much (or how little) you can contribute to it.
4. It is relatively easy
You don’t need to be a financial expert to start dividend investing. I truly believe that everyone who can dedicate a few hours from their life can start it and make success. Chose companies with safe dividend payout ratio, ones that have already have a couple of years of track record. Also don’t forget to diversify your investment among at least 15-20 (or even more) companies. If you follow some basic rules, you cannot go wrong.
If you are interested in more details, I have written a separate article about some basic dividend stock analysis principles I use for myself. You can find it below:
Related article: Simple Ways to Analyze Dividend Stocks
5. It gives you the feeling of ownership
Buying a share of a company makes you an owner, even if your ownership represents a very-very small fraction. You have the right to attend at the general meeting of shareholders, vote in corporate elections etc. These are legal facts. But what I noticed on myself is that I actually do feel some kind of ownership over the companies whose shares I own. I tend to fuel my car at Shell, buy products from Unilever rather than competitors etc. In a way it’s like putting money from one of my pockets to the other one…
So there you go, these are the 5 reasons why I love dividend investing. How about you? Do you have anything to add to this list?
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Disclaimer: This post or any other information on the site is not intended to be and does not constitute financial advice or any other advice. I am solely sharing my idea, plan and progress on early retirement.