Why Dividend Stocks?

Purchasing dividend stocks is a wonderful strategy that suits most investors and provides the simplest starting point when choosing a strategy.

Empirical data from the USA show that dividend stocks deliver better returns than the ones that don’t pay dividends. This dividend is crucial for the total return if it’s reinvested.

This provides long-term investors with the opportunity to invest better and they can focus wholly on dividend-paying stocks and ignore the ones that don’t pay dividends.

Also worth mentioning is that the study by Henrick Bessembinder of the Arizona State University called “Do Stocks Outperform Treasury Bills?” shows that dividend shares are less volatile and are less likely to go to zero.

This is important information because the statistics indicate that the majority of equities do worse than the benchmark index. By investing in dividend stocks, you, therefore, increase the probability of avoiding the really poor stocks (and increases the chances of good returns over time).

Shares that have management discipline and balance sheet/accounts to pay dividends are simply more likely to survive. This is probably why they pay a dividend in the first place.

Investment in dividend stocks is an easy strategy to implement that can help you reduce risk by focusing on the quality of both dividends, balance sheets, and accounts.

Dividend Aristocrats

Companies that are part of the S&P 500 and have increased dividends for at least 25 years in a row are called dividend aristocrats.

It is very popular to invest in these and it is mainly due to three reasons:

Firstly, they probably have a competitive advantage that allows them to increase the dividend every year.

Secondly, you can easily reinvest the dividend in the same stock, and thirdly, history shows that dividend aristocrats have given better returns than the S&P 500, as shown in the figure given below.

It is important to reinvest the dividend if you want a large return. If you consume the dividend, the return falls significantly over time. This is logical because dividends are an important part of the total return.