It seems so simple: invest in dividend paying companies, collect dividends and grow one’s income. What could be the downside to that?
Simple?
There are several considerations about dividend investing. Let’s take a look.
Speed or Not
I will be the first to acknowledge that dividend investing is a slow process to wealth. Firstly, nothing happens until dividends are paid. Since most dividends are paid quarterly, then things change only four times a year. (If a company pays dividends monthly, which a few do, then there is a payment twelve times a year.) And a few other companies pay dividends annually.
Since stock prices vary daily, and many times a day at that, then that frequent movement offers the double-edged sword of the opportunity to take advantage of advances and declines, The frequent movement of stock prices seems to be an attraction that many cannot resist. However, since the volatility of stock prices is endless, and future prices are unknowable, I choose dividend investing as one of the means to avoid the maelstrom of stock prices.
The slow pace of dividend investing requires time. If things change only quarterly, you will need many quarters to show substantial progress. That is why the earlier one starts, the more one will benefit, as noted here and here.
And Another Thing
To purchase dividend paying stocks, one must spend money. Small money, big money, any money… it requires some funds to get started, and requires some funds to continue purchasing stocks. If one has no funds, one cannot buy stock. So one must use some money. The amount is up to you. Using some money for stock means that one has somewhat less money for everything else. That is reason for the Less Now, More Later concept. One must cut back on today’s funds in order to have the income tomorrow. This requires a mindset that permits at least some delayed gratification. Not everyone is ready for that kind of thinking.
So dividend investing is a plan for income using the present and the future. Since it spans and entails actions needed in the present into the future, it expects or even demands a person be able to consider those states. A person only focused on one aspect may have a hard time engaging in dividend investing.
What obstacles do you see for dividend investing? Let me know here.
The illustration of “Zhivotnoe, naidenoe v Ispanii, 27 Ianvaria 1775 goda” [An Animal Found in Spain, January 27th 1775] is from a series of Russian woodblock prints of mythological creatures. Courtesy New York Public Library.
What Do You Give Up When Dividend Investing? appeared first in Smile If You Dare.