Friday, November 8, 2013

Dividend Paying Stocks: Long Term Investment Benefits

Dividend Paying Stocks Yield Benefits in a Long Term Investment

Dividend Paying Stocks Yield Benefits in a Long Term Investment
By James N Baker

Investors always have been looking for investment options which would give a sound growth to their investments along with providing a security to them. Expecting an instant benefit should be the last thing an investor must expect from such stocks, though there are some companies which may provide such benefits too.

Why should you invest in dividend paying stocks?

The fluctuations experienced in the stock market have made the investors feel shaky about making a choice. If invested in dividend paying stocks, one can at least calculate a huge benefit which might not show right at the time of investment or even a little later.

Investing in such stocks is also a passive mode of investment and you keep receiving a dividend pay-out at regular intervals. Along with your money or the Principal amount keeps growing gradually.

Criteria to select a Dividend paying stock

• The first and foremost point you should look into should be to see if the company has been into "surprises" more than often or not.

• Look into the past record of the company and understand the track of its performance.

• Choose companies which have a strong balance sheet and have a low debt ratio.

• Avoid making investments into those companies which pay dividends more often than expected. There is a possibility that they are paying dividends either from their dividends or from their assets.

• Best aspect about Canadian dividend is that they give you tax advantages too. You can also use this benefit for making investments in tax free bonds too.

• Pick up a stock which have a record of paying dividends at the rate of 2% to 6%, avoid choosing a higher paying company because it might not be a real picture.

• Select companies which show a dividend growth rate of 5% or higher. Prefer a company which gives a pay-out ratio of less than 60%.

• You can start your investment with ETF which will need only a small amount of investment to make initially.

• You can also think of investing through Dividend Reinvestment Plan s or DRIPs, this plan helps you to reinvest your income on dividends back into the stocks.

As opined by the Experts, a decade from now, investors will start preferring to make their investments into dividend yielding stocks so that their reliance for income does not only depend upon their job. These investments are a great source of income if chosen with a little research and the right kind of choice needs to be made.

However, instant returns should not be expected, if approached with a long term planning, they can work wonders in ensuring a regular pay-out to the investor as well ensuring growth of the money invested. Make sure that your portfolio is a diversified one, wherein you don't depend on one stock itself. A little careful approach will save you from a series of risks and will assure you of a great source of income, which may be tax free at times too.

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