6 Reasons Why Dividend Investing Plays a Critical Role in Your Portfolio

If you want to build long-term wealth by investing in the stock market, you should consider adding a dividend investing strategy for your investment plan.

6 Reasons to Consider Dividend Investing

1. Favorable Tax Rates

In contrast to the savings account interest rates, the dividend rate on the S & P 500 currently is 1.95%. So that same $20,000 investment would pay you $390 per year in dividend income. Plus, the vast majority of that income is from qualified dividends. That means you enjoy the favorable dividend tax rate.

2. Higher Returns

Historically, dividend-paying stocks have outperformed the market as a whole. That is simply because, in addition to the growth of the stock itself, you get the added benefit of dividends. When you combine these two, you can achieve higher than average growth.

3. Passive Income

When you invest in dividend-paying stocks, you earn income every time the stock pays you a dividend. In most cases, this means you get paid four times a year. That is money you make no matter what you are doing.

4. Secure Future

Prices will continue to rise every year. By owning dividend-paying stocks, you may be able to offset this rise in prices by earning more significant amounts of dividend income.

5. Lower Volatility

Dividend stocks are less volatile than stocks that don’t pay or grow their dividends. There are two reasons for this. 1. Dividend-paying stocks tend to be larger, more mature companies. 2. Investors in stocks that pay dividends tend to be ‘buy and hold’ investors.

6. Long Term Focus

Investing in dividend stocks may lower the urge to want to sell when the market is falling. The reason? You’re earning an income stream by holding onto your investment.

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