Stocks paying significant dividends have less downside risk than other stocks as long as the dividend isn't threatened. Of course, the biggest advantage of dividend stocks is that you get paid just to hold them.
Contrast that to the usual situation where the only way you make money on a stock is by selling it someone else at a higher price. That doesn’t mean that dividend stocks won’t go up in price. Some studies show that dividend payers actually outperform non-dividend stocks in total return and that is the ultimate benefits of dividend paying stocks.
Stocks with solid dividend prospects don’t go down as much as other stocks, because when they start fading, the resulting rise in dividend yield attracts more buyers. Dividend yield is the estimated dividend payouts over the next 12 months divided by the price you pay for the shares. For example, if a company share price is $100 and a dividend of $6 per share is paid, the result is a 6% dividend yield.
The top-yielding stocks now are frequently real estate investment trusts, or REITs. REITs invest in real estate such as apartments, shopping centers, office buildings, and storage facilities. They tend to specialize in one or two of the areas. Because of their legal make-up, they are required to distribute virtually all of their earnings to the shareholders.
The dividend strategy is safest if you have a diversified portfolio. You essentially create your own little mutual fund. You also need some time, at least five years, to give the strategy a chance to produce results.
A company has to have cash to pay dividents. Unlike earnings figures, it can't be mainipulated because it's actual cash paid to shareholders.
However, dividend-paying stocks tend to lag when the market is rising sharply, but the dividends act as a cushion when stock prices are falling.
One of the basic rules of life also applies to successful investing -- success is highly dependent upon a combination of hard work, intelligence, and honesty.
Relevance book: "Common Stock Investing for Income and Appreciation"
