Dividend stocks are not just for your retirement
When you think of a “retirement” stock, certain things come
to mind. Retirees need income, so their portfolios tend to be chock full of
dividend stocks. They also tend to prefer stable, established companies over
new and unproven up-and-comers. Growth is important, but safety and stability
are more important. Leave the flashy growth stocks to the kids.
But while we tend to think of retiree stocks in this light,
investors of all ages would be smart to take the same balanced approach. After
all, value stocks have massively outperformed growth stocks over time, and
dividend stocks outperform their non-dividend-paying peers … and with less
volatility to boot.
The outperformance of dividend stocks is not random. Paying
a dividend forces company management to be more disciplined. Every dollar paid
out to investors is a dollar that isn’t retained in house, so management is
forced to prioritize and, ideally, eliminate value-destroying empire building
via acquisitions.
Furthermore, in investing you win by not losing. By limiting
your portfolio to dividend stocks, you immediately exclude younger and unproven
companies — or those most likely to spectacularly blow up.
The safest dividend is the one that was just hiked. If
management was confident enough to raise the dividend, it generally means that
company is bringing in ample cash for future dividends. So, by further limiting
your list of dividend stocks to those with a good recent history of raising the
payout, you better increase your odds for outperformance.
So, today we’re going to take a look at five dividend stocks
that would be every bit as appropriate for a young investor just starting to
save as for a retiree living on the golf course.
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