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THE GUIDE TO DIVIDENDS:
Anytime you buy a stock, that entitles you to a small portion of that company’s profits – and, sometimes, those profits are distributed to you on a regular basis in the form of a dividend.
-They’re somewhat insulated from the stock market.
For the most part, you know that you’ll get a predictable dividend payment – regardless of what happens with the market.
-Dividend Payments have also been less volatile than stock prices.
For example, the Simply Safe Dividends blog found that – from 1900 through 2018 – dividend payments remained fairly constant, with an average variance of +/- 10% during market downturns.
-Throughout Recessions – Dividend payments sometimes increase.
As Simply Safe Dividends points out, “in three of the above recessions…dividends paid to investors actually increased, including a 46% jump during the first recession following WW II.”
-Dividend stocks have been shown to provide a comparable return to the overall market.
In fact, Fidelity found that dividends accounted for 54% of market returns during times when inflation was above 5%.
-Dividends ARE NOT guaranteed.
Even though companies generally try to avoid cutting or reducing dividend payments, this does happen, and because dividends are often a reflection of a company’s profits, in the event of a downturn, they may chose to pause distributions until conditions improve.
-Dividend payouts mean nothing when the company itself declines in value.
In this case, earning 5% annually might actually LOSE YOU MONEY when the stock itself declines 30%.
-There can be tax disadvantages.
Unlike buying a stock and only paying tax when you sell, Dividends are taxed the moment you receive them – and, depending on your tax bracket, it could be as high as 20%, or more.
-Dividends could flat-out be “irrelevant.”
In this case, two well-known economists argued that – if an investor needs money – all they really need to do is sell the stock – and that, dividends don’t actually create any more value for the company itself.
From my perspective, though – MONEY ISN’T FREE, and even though you’re getting paid a dividend, that REALLY just comes out of the company’s cashflow that isn’t being re-invested to grow the business.
That’s why I think that the real benefit of “dividends” isn’t so much that they’re a better investment, or – that they’re superior to a stock that DOESN’T pay a dividend – but, instead – they give you the psychological benefit of receiving steady income, without the need to physically sell your shares to collect your money.
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*Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan receives cash compensation from Public for sponsored advertising materials. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. This is not investment advice. Public Offer valid for U.S. residents 18+ and subject to account approval. There may be other fees associated with trading. See Public.com/disclosures/