Know the Advantages and Disadvantages of Dividend Stocks

As most of the financial institutions are offering low return on investment or low interest on deposits, investors are looking for another way to enjoy good return on their investment and they are finding high dividend stocks an appealing choice.

Though dividend stocks are (generally) a good investment, these stocks expose investors to some degree of risk. For a smart investment of your hard-earned money, it is necessary for you to study these stocks properly and understand the pros and cons of investing in dividend stocks.

Pros

  • You get a return on your investment every six months or every three months. If you invest in monthly dividend stocks, you can get even a monthly return on investment.
  • In general, companies increase their dividends over time, so the return also increases.
  • If you compare dividends with bonds or any other kind of income, you find that dividends are quite tax efficient. The profit on dividends is taxed lower.
  • Dividend stocks are usually a safer investment choice than the average stock.

Cons

  • Companies are free to reduce or eliminate dividends, but deposits in financial institutions are insured by the government.
  • Dividend stocks are riskier than bonds. Therefore, you cannot deem them as a substitute to bonds.
  • Several faster growing companies do not pay any dividends. And in general, dividend paying stocks have less “seed corn” with which to grow.

These are just some of the main pros and cons of dividend stocks. For detailed information and to make a smart investment decision, reach a professional stock market research analyst who will provide you comprehensive information and suggest to you how you can invest your savings for a solid return.

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Know the Advantages and Disadvantages of Dividend Stocks