Dividend Investing

Dividend investing is a hybrid strategy focused on generating income from your investments while also growing your wealth. Dividends are regular cash payments that a company sends to its investors. You can receive dividends as income, or you can instruct the company or your broker to reinvest your dividends in additional shares of stock.

Rarely has dividend investing been more essential.

The Federal Reserve has kept short-term interest rates—known as the “federal funds rate”—near zero since the recession in 2008. That means the usual avenues for income investors—U.S. Treasuries, CDs, money-market accounts—are essentially worthless. Thus, dividend stocks have become the primary alternative for earning a steady stream of income from your investments. 

That’s why more and more companies are jumping into the dividend pool. Roughly four-fifths of the companies in the S&P 500 now pay a dividend. Buying a stock that doesn’t pay a dividend can only reward you in one way: share price appreciation. Dividend investing, however, grows your wealth in three ways. 

First, like with any stock, your portfolio increases as the price of the stock appreciates. Second, you will receive an income stream of dividend payments, which you can collect in cash or reinvest to further boost your holdings. Lastly, many companies increase their dividends over time, providing an income stream that often outpaces inflation, and greatly increasing the yield the longer you hold the investment. (Your yield is how much you earn in income every year as a percentage of your investment.)

Dividend investing has traditionally been regarded as a “safe” way to invest. However, with 80% of the S&P 500 now paying a dividend, dividend investing can now be combined with practically any other investing style, from buy-and-hold blue chip investing to high-potential small cap investing (yes, some small caps pay dividends!).

Whether you choose to invest in dividend-and-growth stocks like Apple (AAPL) or investments that are all about the income (like REITs), what all dividend stocks do, particularly those that have been paying and growing their dividends for years (e.g. “Dividend Aristocrats”, companies that have increased their dividend payments annually for at least 25 years), is provide a buffer against huge losses. Investors treat a stock’s dividend yield like a floor, because it makes it easier—and more worthwhile—to hold these stocks through hard times.

Dividends are also proof of a company’s validity—there’s an old Wall Street saying that “dividends don’t lie.” That’s because dividends are cold hard cash paid to investors, so only companies that are actually raking in the money can sustain dividends over time. There’s no better indicator of a tried and true business than a long dividend history.

So dividend investing is a way to minimize your risk, and protect your portfolio against huge losses. It’s a way to fortify yourself against market volatility and the wild share-price fluctuations it brings. And as long as the traditional income avenues remain essentially closed off by the Fed, dividend investing will continue to be the most sensible way to build your wealth.

To help guide you in your dividend investing, we offer two dividend services at Cabot Investing Advice. Those are Cabot Dividend Investor, a service that has generated 328% total returns and a 14.1% yield back tested to 2009, and the Dividend Digest, a newsletter that presents the best of the best dividend-paying investments in a concise 12-page document. 


Ex-dividend Dates

If I buy a stock on the ex-dividend date, will I receive the dividend for that quarter?»

Why Dividends are Important

History shows that dividend income is an important part of your total return when investing in common stocks.»

Headline News

Stock Picks

Ovascience

Currently, OVAS is digesting rapid gains, and appears to be forming a base. Any dips could be seen as buying opportunities.

Francesca's Holdings

Without question, Francesca’s Holdings (FRAN) is unloved now, but the stock could become a big winner during the next three to six months.

Ctrip

China's biggest travel-related website.

Cabot Wealth Advisory

The Social Media Investor

By Timothy Lutts on April 27, 2015

Last week’s Wall Street Journal had a story on the growing use of social media among investors. They use it for research, they use it for sharing ideas, and they use it for gauging who is worth paying attention to—and who isn’t. And who do they think is worth paying attention to?Read More >

Getting Safe Returns on Your Investments

By Paul Goodwin on April 24, 2015

Here are a few options that you have to get a safe return on investment that will allow you to retire without worrying about burning up your capital.Read More >

A Solar Stock with a New Revenue Model

By Michael Cintolo on April 23, 2015

First Solar was one of our biggest winners ever back in 2007 to 2008, but honestly, we’ve never found much to get excited about from the company in recent years. Read More >