I love buying shares of stocks that pay a dividend. Dividends are a great way for companies to give back their earnings to the company’s shareholders. In classic finance, a company’s stock share price is derived from the present value of its future income…its dividends.
You Are Paid To Wait For The Stock To Increase
There have been instances of good companies that have been caught in a value trap, and their stock prices have treaded water for years. Microsoft is a great example that immediately comes to mind. Microsoft continued to trade in a very narrow range for years before breaking out earlier this year.
But, the one good thing for investors was that Microsoft has initiated a dividend years ago. So, the company paid investors to be patient and wait for the eventual capital appreciation that they saw this year.
Dividends Give You A Great Passive Income
The name of the retirement game is passive income streams. Whether you are earning a passive income from a traditional pension, rental income, drawing down your nest egg, or other means, having income that you receive without having to physically work for it is one of the primary goals of retirement investing. Dividend income helps add an additional stream of passive income.
Typically every quarter, dividend investors receive income. Some investors have even spread their wealth around to different dividend paying companies that stagger the months they pay dividends and receive monthly checks from different companies. Dividends from company stock is just another tool in your toolbox that can help you diversify your investments and your passive income stream in retirement.
You Can Buy Dividend Stocks Without Paying Commissions
I am a huge fan of buying dividends directly from the companies through dividend reinvestment planswhich are also commonly referred to as DRIPs (pronounced drips). The beauty of DRIPs is that you skip the discount brokerage firm likeor E*TRADE. Instead you buy the share directly from the company or the transfer agent.
This is a great way to skip the commissions that you pay even the cheapest discount broker. It is also another great way to help you practice dollar cost averaging with your investments while you buy a few shares every month. Trade Free for 60 Days at E*TRADE Securities LLC
I love dividend paying stocks, and you should love them to. They offer investors a great way to save for retirement and build they nest egg. Whether you are waiting to sell your shares or holding onto them for passive income in retirement, dividend paying companies offer investors a great resource to accomplish their financial goals.