Dividend stocks investing strategy
Nor likely will their share prices in many cases, as their transitory high dividends may be nothing more than a shiny object to lure investors—not a reflection of sustainable financial strength. These companies are often of lower quality, with lower prospects for long-term total return. Professional investors view dividends as a way to get paid for their patience in waiting for a stock to rise.
And for individual investors nearing retirement, including physicians, long-term dividend investing can be an excellent strategy. These payments can provide an additional retirement income stream, an attractive feature for practitioners who lack corporate pensions but have large portfolios with plenty of room for a diversified selection of dividend stocks.
Dividends sometimes grow astonishingly fast. An example lies in the records of some stocks in the NASDAQ Dividend Achievers Index—a group of growers that has increased dividends annually for at least the last 10 consecutive years. Between these two is Kroger at Investors researching dividend histories should take a long look back, over at least several years but preferably a decade, to determine consistency.
Of course, with dividend-grower funds, managers have already done this vetting. Historically, dividend growers have been associated with downside risk protection in difficult markets. Growers have also outperformed show-ers during periods of high volatility. During such periods, show-ers are far more likely to cut dividends, often because their defenses against turbulence tend to be weaker.
Greater leverage, lower profitability and lower earnings growth render show-ers less able to withstand rough markets. Moreover, dividend investing can be tax efficient, especially since most dividends paid by common stocks are qualified , taxed at capital gains rates, which tend to be much lower.
Whether investors are still working or retired into a lower tax bracket, this difference can help them keep more of their investment income. Thus, well-chosen dividend stocks can provide reliable, rising income with high potential for growth and relatively low long-term risk, even in challenging markets.
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Our investing reporters and editors focus on the points consumers care about most — how to get started, the best brokers, types of investment accounts, how to choose investments and more — so you can feel confident when investing your money.
Investing disclosure: The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice.
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