A lot of people have a tough time trying to make money in the stock market. They find that it can be quite difficult to beat the market. Instead of trying to outsmart a lot of professional investors, you can add some certainty to your investments portfolio. One of the ways that an investor can ensure themselves of a positive return when investing is to buy stocks that pay investors a dividend. Let’s look at the three reasons why dividends are a hit with investors.
Cash dividends offer positive returns
Dividends offer a guaranteed rate of return that investors can count on. You never know if a stock is going to rise in value or decline in value because that always depends on the performance of the market. For example, during bad markets a stock can plummet causing you to lose much of your capital appreciation. You do however know that a company will pay its dividend once it is declared because you are entitled to receive the distribution. You can offset some of the losses during these bad periods with dividends.
Cash dividends provide income
A stock that pays a dividend will reward investors with a cash stream that they can count on. Cash income is pretty important to those that live on a fixed income because they need to know that they will receive money on a regular basis. That is why dividends are so popular with both senior citizens and people that have retired. They know the long term money making power that dividends have on a monthly budget.
Cash dividends offer stability
It has been proven that companies that pay a dividend are a whole lot more stable than companies that do not. That is because their share prices drop a lot less than other stocks when the market is falling. Investors perceive of these stocks as safer because they know that a cash payout will be coming soon. If a company can afford to continually pay cash year after year, that is a sign of a strong company with a whole lot of cash flow.
You can tell from the list above why investors find dividends to be such a great addition to any portfolio. Dividends that are paid out either quarterly or annually by a company can help to increase the internal rate of return for an investor by a few percentage points. This can mean the difference between making money in a given year or losing some cash that year.