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Why Dividend Stocks Are Necessary in a Portfolio

Why Dividend Stocks Are Necessary in a Portfolio

If you’re a long-term investor then you might catch yourself wondering why you might want to include any dividend stocks into your portfolio. You could just invest in blue-chip stocks and index funds and surely your money will grow. While this is true, your money will grow even more by adding the right dividend stocks to your portfolio.

Dividends are seen as some of the money makers in the investment world. They make your portfolio increase at a more rapid rate than it would normally because good-paying dividend stocks can really lead to a nice return in your portfolio if you’re reinvesting them.

While index funds do provide a more secure asset for your money to grow in, they won’t make you as much of a return as a great dividend-paying stock will. A great dividend-paying stock will pay you a great return while also possibly going up over the years in value.

If you really want to boost up the returns in your portfolio, there are going to be some rules you’ll need to follow for adding dividend stocks. Actually, consider them less as rules and more as loose guidelines.

Dividend stocks come and go

It might be a month, a year, or a decade. It’s important to remember that dividend stocks are not like your index funds. Your goal isn’t to let your money grow for decades until one day you get a nice return.

For dividend stocks, you want to buy into a position that you hope grows a bit over the next few years and also pays a handsome dividend. Then, as that position slowly grows it’ll also pay you well for holding it and you’ll make money until you eventually sell and do it all over again.

Companies go under and take losses, stock prices go up and down, it’s important that you try to not lose your money in a stock while you get paid from it. That’s why you should never have the mindset that you’ll hang on to your dividend stocks forever and instead should be always searching for new positions and looking at the best times to get out of old ones.

Even when you finally decide to retire and possibly live off of your dividend income, you might still find yourself trading one dividend-paying stock for another.

Diversify your dividend stocks

Just like the rest of your portfolio, it’s important that you diversify your dividend stocks. AT&T (T) is a great dividend-paying company, but you don’t want it to be your only one.

If something goes bad and a company that you’re invested in starts to tank, you’ll sleep better at night knowing that you don’t have a lot of funds parked in one place.

Diversify your dividend portfolio and focus on different sectors, stocks, and funds that you think will benefit your portfolio and result in great returns.

Besides, with so many great paying dividend stocks out there, it’d be a shame if you didn’t take advantage of all your options.

Don’t worry about monthly payments or quarterly payments

Some people love buying into popular dividend payers like Realty Income (O) because it pays monthly.

While a monthly dividend payment does sound nice, it’s important to remember that it’s no different from a company with a similar dividend yield that pays quarterly.

The only difference is that if you reinvest your money, you’ll be able to do it more quickly if you’re getting paid a monthly dividend compared to a quarterly one.

Don’t go dividend crazy

One final piece of advice before you start buying every company that pays a dividend like Andrei Jikh does on YouTube: Do your research.

Not every stock that pays a dividend is great and solely investing in a stock because you like that its dividend payment isn’t wise. Make sure you understand the company, the direction it’s heading, and how that impacts the dividend before you actually put your hard-earned money in it.

Dividends are powerful ways to accumulate money but only if you use them correctly.

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