What is dividend investing?
Investors across the globe invest their money with the intention of earning potential profits. They use different techniques in order to maximize their earnings. These investors need a safe, easy and reliable platform to invest their money. To meet the needs of these investors, dividend investing comes into play.
Dividend investing is a process under which one can buy stocks of a company and in exchange for stocks held, regular cash is paid as a reward. The dividend is that part of the profits of the company which is distributed among its shareholders. A dividend is a form of constant and stable source of income for the shareholders.
The shareholders invest in the companies with the aim and vision of making profits. The dividend received is in proportion to the profits earned by the company and the number of shares held.
A dividend is a share in the distributable profits of the company to which the stockholders are entitled when it is formally declared by the company.
Investment strategy:
Dividend investing is probably one of the best investment options Recently. Keeping in mind the volatile market and booming global scenario, carefully investing in dividends could be your best bet.
Dividend stocks provide two main sources of returns: dividend which is a regular income to the stockholders, and capital appreciation of the stock price. Dividend investing has proved to be a reliable, less risky, and high-yield form of investment.
In India, the trend of dividend investing has accelerated with the growth in the industrial sector. This has created many opportunities for us to multiply our money.
Presently in the business world, many companies are coming forward to meet and fulfill their capital requirements and in turn benefit the investors with reward.3M, Procter and Gamble, and Lowe’s are examples of companies providing very good returns to the stockholders. They are among a group of elite companies called Dividend Kings.
To understand more about the benefits of dividend investing let’s dive deep into its advantages. To understand how dividend investing can benefit you and your business, let’s dive deep to learn the top 6 advantages of investing in dividends.
Advantages of Dividend Investing:
1. Income Generation–
- Dividend investing allows the productive use of funds. In the hands of the investors, their excess funds would have remained idle. The stock market’s average return is 10% annually, which is much higher than any other bank or bond. Investing in a good and reliable company helps you generate a stable source of income.
- This regular earning is one of the important factors which attracts investors. Dividend investing enables a regular supply of cash. Wise decisions should be made while selecting the companies into which you invest. Companies may pay dividends quarterly, monthly, semiannually, or annually.
2. Capital Appreciation–
- Capital appreciation refers to the increase in the value of the stock since an investor purchased it. It is a rise in the value of the market price of the asset purchased. It is a form of passive income for the investor. Capital appreciation can be calculated by comparing its current market price and the original purchase price. This is a form of long-term investment in dividend investing.
- Capital appreciation would result in a capital gain when the stock is sold. This strategy is one of the most common and effective ways to grow wealth. Investors who follow the growth style of investing are focused on capital appreciation.
3. Dividend Growth Compounding-
- Dividend investing combines the benefits of compounding dividends, growth of dividends per share, and the increasing value of shares. There are two ways by which dividend compounds; first by reinvesting dividends and second by holding dividend growth stocks. This means investors can reinvest the dividend received from existing shares to buy more shares.
- It is a form of passive income for investors. One can accelerate their income growth by reinvesting their dividends. In the long run, investing with the proper strategy will help you achieve high returns.
4. Hedge against inflation-
- Inflation refers to the gradual increase in the prices of commodities throughout an economy. Your money can lose its worth over time, and in turn, your real purchasing power decreases. One of the most effective ways to hedge against these rising prices is dividend investing.
- Generally, when the inflation rate rises, stocks tend to do better. You can use this money in any emergency since it is like an easily accessible savings account. To grow your money, funds should be invested in the stock market. Over the last few years, dividend investing has proved to beat inflation.
5. Safe Dividend Investing-
- The Indian capital market has flourished a lot in the past few years. This has created many safe dividends investing opportunities with high returns for Indian investors. SEBI and the Reserve Bank of India are the regulatory authorities to safeguard the interest of the investors. With the increasing accessibility of trading terminals, dividend investing has become a popular mode of investment in India.
- Bharat Petroleum Corporation Ltd., Indian Oil Corporation Ltd., Indus Towers Ltd, and Ambuja Cements Ltd., are a few examples of Indian companies with high-yield stocks. Hence, dividend investing in India is an open door of opportunity for Indian investors.
6. Easy liquidity-
- Shareholders depend on dividends to satisfy their liquidity needs. Liquidity refers to how easily an asset can be converted into cash. Dividend investing provides a mechanism for liquidating the stocks when required. This means at any given time, the investors can sell their stocks and convert them into cash.
- Stocks are characterized by higher market liquidity. Stocks with high liquidity are beneficial for investors as they can be easily traded to attain capital gain.
- Stocks can be easily sold via a broker. This is an important factor for investors who do not wish to invest for a long period. This quality is the main foundation for the attraction of investors. It is easy, reliable, and less volatile.
THE BOTTOM LINE
The benefits discussed above are proof of the credibility of dividend investing beyond a reasonable doubt. No matter what stage of life you are in, everybody enjoys an extra income. It has been made clear how you can use your idle funds efficiently and grow your money. Dividend investing is not only beneficial to you but also for the company. The company’s capital formation is provided through this channel.
Consulting a good asset management firm like ANS can help you with a smooth investment journey. Their Financial experts can guide you to select the best dividend stocks and invest with minimalistic risks.
India is a country with a flourishing economy. The market is growing at an impressive rate. The growth of Indian companies in the past years is apparent. Which in turn has benefited the investors positively. Many Indian companies today provide high-yield dividends which are worth investing in. Regulatory authorities have also contributed to safeguarding the transactions.
Concludingly, taking into consideration all the factors, dividend investing is doubtlessly one of the best investment decisions you can make.
