Avoid These 5 Mistakes When Investing in Dividend Paying Stocks - InvestorFobia

Dividend-paying stocks are arguably the best way to build wealth over time, but first you need to know what to look for.

Here are 5 secrets you need to know before becoming a dividend investor:

  1. Don't chase yield: High yield may sound great, but it's risky. You're essentially betting that a company will be able to grow its profits enough to make their dividend worthwhile. That may work out, or it may fail, and you could lose your money.
  2. Follow the market: Dividend-paying stocks are attractive in part because the market as a whole is attractive. When the market is doing well, everyone is making money, which means stocks in general are in high demand. That forces companies to raise their prices, making dividend stocks even more attractive.
  3.  Keep costs low: Companies love to repeat history, so they often raise dividends when their profits are going up. That makes sense from a business perspective, but for dividend investors, it can be a problem. Many dividend-paying stocks pay out 80% or more of their earnings in dividends, so they'll always raise dividends when their profits are highest. You want them to be paying you dividends when the market is not doing so well, when profits are down.
  4. Stay diversified: There's an old saying that "Dividends are safer in a crowd." It's because dividend-paying stocks tend to rise and fall with the market. If enough dividend-paying stocks are rising, the market as a whole may be going up. But if they're all falling at the same time, it could cause the market to crash. That's why it's important to diversify across several different dividend-paying stocks that rise and fall together.
  5. If you own dividend-paying stocks, congratulations! You're well on your way to becoming a future millionaire.

However, there's a catch. Not all dividend-paying stocks are equal.
Sure, they're great if you're investing for the long haul. But if you're looking to cash in on your gains, you'll want to diversify your portfolio.

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