These five income-generating stocks could power your portfolio to market-beating returns.
There's no shortage of stock selection criteria that
investors can use in pursuit of market-beating returns, but no strategy has
more reliably created wealth than buying quality dividend stocks, setting the
payments to reinvest, and holding for the long term.
Whether an investor is young or old, new to the market or a
seasoned pro, income-generating stocks can play a key role in elevating
portfolio performance and paving a path to financial freedom. Owning a
collection of dividend stocks shouldn't be thought of as a way to generate
great returns without work, research, or risk, but dividend investing does
present a blueprint that the average investor can thrive with once he or she
knows what to look for and has a solid foundation to build on.
Understanding the basics of dividends
When you buy a stock, you're purchasing an ownership stake
in that business, and some companies will opt to distribute a portion of
earnings to their shareholders in the form of cash dividends. Not every company
chooses to pay a dividend -- with some instead preferring to reinvest cash
flows into growing the business, pay down debts, or build capital reserves in
accordance with their needs.
Depending on the state of the business and its growth needs,
returning income to shareholders isn't always the best use of capital.
Companies that are in relatively early growth stages tend to be better served
by funneling profits back into expanding the business, but there are clear
reasons many investors flock to income-generating stocks.
Companies that are in a position to pay regular dividends
tend to have dependable earnings, and this characteristic in conjunction with
the power of compounding and reinvestment have led dividend stocks as a
category to outperform their non-income-generating counterparts over the long
term. That doesn't mean investors should just select dividend stocks at random
and expect to beat the market, however.
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