How to Buy Stocks that Pay Dividends

Posted on 28. Jan, 2011 by GuestPoster in Stocks

Investors who buy stocks that pay dividends have several advantages to those who simply trade for profits. Unless you are a professional trader, it is hard to sustain any long term gains from buying and selling stocks in a short period of time. The volatility of the stock market has proven this many times, leaving inexperienced investors on short end of most trades.

While there are plenty of successful traders in the market, it is much easier for a beginning investor to buy stocks for the long term as opposed to using strategies like day trading. Taking a long term investment approach lowers the overall risk of investing in the stock market and improves your chances of success.

One approach to investing long term is to buy stocks that pay dividends. Here are 3 advantages for investors who choose to buy dividend paying stocks, compared to short term investors.

• Dividend Income – One of the best reasons to invest in stocks that pay dividends is for the income it produces. If you are looking to supplement your income or build wealth, investing in dividend stocks is a great place to start. Once you begin receiving dividend payments, you have the option to reinvest your income through a DRiP. This is a great way to accelerate your income and profits.

• Capital Gains – Not only do dividend stocks provide a long term income stream, investors can also earn capital gains as with any other stock. Investors who hold a given stock for at least 1 year will also pay less in capital gains taxes. Investors who sell a position in less than 12 months will be subject to paying higher capital gains taxes.

• Stability – Purchasing solid dividend stocks can provide a stable and profitable investment opportunity. The best income stocks can withstand huge market swings like we have witnessed over the past several years. Most companies that have had strong dividend growth performance over the past 25 years are some of the best run organizations around. This can allow investors to concentrate on finding new opportunities instead of worrying about their current holdings.

Buying dividend stocks can provide a wonderful opportunity to build wealth over time. Unlike short term investments, an income stock provides stability to a portfolio along with the opportunity to build a solid income stream and earn capital gains.

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Tags: capital gains, dividend income