Is Dividend Investing Worth It?

Here at Sure Dividend, we strongly believe that investors following a dividend strategy are well on their way to creating wealth. 

Not everyone agrees with us however…

There are several complaints that are made against using dividend growth investing as a strategy for saving for retirement, often by people appearing on various financial channels.

Dividend growth investing is often dismissed by these commentators for several reasons, but the most often used are that the yield of a security won’t offset a steep decline in price and that the taxes on dividends greatly reduces results.

While these complaints do have some merit, we advise against taking this advice from “experts”. This article will counter two main arguments against our preferred retirement planning strategy in an effort to show the reader why we feel dividend growth investing is worth the work in the end.

Yield Won’t Make Up For Significant Loss, But It Will Lessen The Blow

One of the main arguments we hear against dividend growth investing is that the dividend yield cannot make up for a significant lose in share price. This is true. If a security declines 20%, the dividend yield likely won’t compensate you for that decline.

The dividend yield in this case does offer two benefits. First, if security ABC declines 20%, but pays a 3% dividend yield, then the actual loss is not as high as just the change in price. This isn’t true for a stock that doesn’t pay a dividend. A 20% loss is a 20% loss.

The other benefit deals with the reinvestment of the dividend. If the dividends received are reinvested in the security then they purchase shares at a reduced rate. If the investor still feels confident in the underlying company even after a 20% decline in value then the reinvested dividends just purchased a security at a much-reduced price. In fact, the reinvested dividend acquired even more income.

Consider this example. The investor has an investment of $10,000 in company ABC. The average purchase price for these shares was $100. Shareholders receive $3 in annual dividends, which equates to annual income of $300. Instead of taking the dividend in cash, the investor chooses to automatically reinvest these dividends.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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