Let’s face it, it’s every investor’s dream to own a portfolio that produces consistent returns.
Unfortunately, dreams aren’t always a reality. Many budding investors with high hopes have found themselves deep in the red after making bad investment decisions.
If cryptocurrency and traditional growth stocks have let you down, consider diversifying and adding high-dividend stock investments to the mix.
Dividend stocks are shares of a company that are paid out to shareholders regularly. They are usually paid out quarterly, but some companies follow different period schemes during payout. Their share values can also increase or decrease, just like any other stock and cryptocurrency.
From income potential to increased tax efficiency, high-dividend stocks offer a unique set of benefits that can help investors at any stage of their investing journey.
Here are five reasons why you should consider adding high-dividend stocks to your portfolio.
1) They Act as Passive Income
Putting your hard-earned money in a low-interest savings account is acceptable for security purposes, but doing so is not the best way to make your money work for you.
For one, it’s a very slow way to grow your wealth. The average savings account interest rate in Australia is marked at only around 2 to 3% per year. While it’s better than nothing, other investment vehicles can generate more assets for you.
One such way is by investing in dividend stocks. Depending on the profitability of the company you’re investing in, these stocks offer a great way to passively generate income. Over time, this can compound and grow your portfolio into a significant sum of money.
Perhaps the best of all is that you don’t have to think about it or actively do anything once you’ve made the investment. The company will continue to pay out dividends as long as they remain profitable, and you can reinvest these payments back into the company or use them for other investments.
2) They’re a Safety Net
Even the most experienced investors can find themselves in hot water if they don’t diversify their portfolios.
When you put all your eggs in one basket, you’re putting yourself at unnecessary risk. If the market crashes or a particular industry takes a hit, your entire portfolio can come crashing down.
High-dividend stocks offer a level of stability that can set your portfolio up for success. Even if the market crashes, these stocks usually don’t lose their value as quickly as other growth stocks.
This stability is largely because dividend stocks are blue-chip companies with a long history of success. They tend to be large, well-established businesses that have a rich financial history and a healthy bottom line.
In addition, high-dividend stocks often pay out dividends that are much higher than the average stock. You’re not always guaranteed to have your investment strike exponentially big, but you can at least count on a reliable stream of income from these stocks.
3) They are Inflation-Proof
When the average person bears the brunt of inflationary pressures, smart investments can help you weather and even benefit from it.
Dividend stocks, in particular, tend to hold their value during inflationary periods. As the cost of living goes up, the prices of goods and services also increase. This results in higher profits for companies, which is often reflected in their share prices.
When compared to bonds and term deposits, high-dividend stocks earn a higher rate of return over time. This is especially true for companies that have strong cash flows and dividend rates.
As such, when economical turmoil strikes, be sure to have a healthy mix of high-dividend stocks in your portfolio. It might mean the difference between losing and winning your fight against inflation.
4) They are Tax-Efficient
In Australia, there’s a concept called dividend imputation. This concept is also known as franking credits. This is a system that refunds taxpayers for the company tax already paid on dividends received.
Under this system, the tax that has already been paid by the company is passed on to shareholders in the form of credit. This credit can then be used to offset any tax payable on the dividend income.
For example, if you receive $100 worth of dividends from a company with a 30% corporate tax rate, you’ll also receive $30 worth of franking credits. This means that you’ll only be taxed on the $70 net dividend income instead of getting double taxed from both your side and the company.
This system makes dividend stocks a very attractive investment for those looking to grow their wealth in a tax-efficient manner. When you don’t get taxed twice on your profits, you get to keep more of your money and grow your portfolio at a faster rate. You can learn more about dividend stocks with HALO Technologies.
5) There’s Less Risk Involved
When you invest in high-dividend stocks, you’re not investing in companies that have an anonymous founder or an untested business model.
You’re investing in companies that have been around for years, if not decades. These are companies with a proven track record of success and a well-established business model.
There’s less risk involved because you’re not gambling on unproven startups or shady cryptocurrencies. While they aren’t top-of-mind if you’re thinking about finding an investment vehicle that’ll lead you to the fast track of wealth, they offer a level of stability that can’t be disputed.
Comments