Investing

5 Reasons Why You Should Consider Dividend-Paying Stocks In Your Investment Plan

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Buying stocks and shares is buying ownership in a company. And when that company makes a profit, the board of directors has the option to share their profits with their shareholders in the form of dividends.

Why invest in dividend-paying stocks

1. Sign of profit. Companies that pay dividends are companies that have made a profit. There are two main reasons for investing in the stocks-the potential for the appreciation of the value of the stock and the potential for receiving part of the profits from the company to which the stock belongs.
2. Stability. Companies that pay dividends tend to be stable. They have healthy balance sheets.
3. Power of compounding. Dividend payments can be reinvested, which accelerates the power of compounding, further increasing the value of your stocks.
4. Source of passive income. If you choose not to reinvest the dividends, you can use the dividends to supplement your income.
5. Tax favored. Dividends are taxed more favorably in the hands of the investor. The companies that produce the dividends have already paid taxes on their income. And as a shareholder, you have also indirectly paid for the profits. So, you won’t have to pay much in taxes for dividend payments.

Dividend-paying stocks.

Stocks that pay good dividends tend to be banks, utility companies, energy-producing companies, and consumer goods. Some examples include Bank of America, Chevron, and Coca-Cola. High dividend-paying stocks in Canada include Algonquin Power & Utilities Corp, Transalta Renewables, and Royal Bank of Canada.

If you want to invest in an exchange-traded fund consisting of high-dividend paying stocks, Vanguard Dividend Appreciation ETF (VIG) and Fidelity Canadian High Dividend Index ETF (FCCD).

Jennifer Thompson was a financial advisor for twenty-five years. The suggestions made in this article are not recommendations but examples. See your local financial advisor for assistance in creating your financial plan.

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