Posted on 16 December 2011.
One of the lesser known facts regarding making money in the stock market is that investing in stocks with high dividends is an excellent way to ensure that your overall stock market returns are higher than average. Over long periods of time, gains made from holding stocks are bolstered significantly by investing in stocks with high dividends. In fact, nearly half the gains that are made by holding stocks over long periods of time are the result of dividends paid by companies to their stock holders.
While stock market participants spend countless hours analyzing the stock market for good entry and exit points to make additional profits, many shrewd investors are booking consistent above average stock market returns by investing in stocks with high dividends. Stocks that pay high dividends are not usually the high flying stocks that create excitement in the stock market. Rather, they are well established companies that have a proven track record of earning money and sharing that money with their shareholders by paying it out as high dividends.
The nice thing about investing in stocks with high dividends is that these stocks pay you while you wait for the stocks and the stock market to increase in price. This means that stock market investors make money on the high dividend paying stocks that they own no matter what the stocks and the stock market are doing pricewise. The high dividend payments continue until eventually the stocks and stock market recover.
Stock market investors who are more conservative may find investing in preferred stocks that pay high dividends to be the best way of investing in stocks with high dividends. Preferred stocks are safer to hold because they usually pay a legally defined dividend that is payable to preferred stockholders before a dividend is paid to common stockholders. This means that a high dividend paid by a preferred stock is more reliable than a high dividend paid by a common stock.
As an alternative to investing in individual stocks that pay high dividends, investors can spread out their risk by buying high yielding stock funds that invest in number of stocks that pay high dividends. Stock funds that invest in high dividend paying stocks currently pay approximately 5% dividend yields. Two examples of Stock Funds that invest in high dividend paying stocks are: WisdomTree DEFA Equity Income (Symbol: DTH) and First Trust STOXX Euro Select Dividend Index (Symbol: FDD).
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