How's it going today, guys?
What we're talking about today
are the pros and cons of buying a dividend stock.
I just want to mention, before I get
into the video, if my voice is still
sounding kinda weird, I have legit
been sick for nine days straight now.
It's been awful, I don't know what's going on.
I've been completely wiped out for like,
over a week now, and it's been rough.
But still trying to get this content out to you guys.
That's like my number one goal,
or like my number one thing that I do,
before anything else, is get these videos out.
Because this is really what I enjoy doing,
and I really pride myself on being consistent with it.
Despite being kinda scratchy-voiced and sick,
I'm still gonna get rolling with the video, here.
I did a video already, talking
about just dividend stocks, in general.
At the end of the video, I'll link it up in a card
if you guys want to check that out,
because that can provide some other information
to you about dividend stocks, in general.
This was actually something that somebody reached out
to me, and wanted me to cover,
are like the pros and cons of the dividend stocks.
If you were somebody who was going
to invest in some of these, what are the advantages
of those and what are the disadvantages of dividend stocks?
Also, I want to mention too, if you guys have
any questions about investing or any topics,
in general, that I cover on this channel,
please drop them in the comments below and I'll
either do my best to answer them
in the comments, or I could do a video
about it if it's a very interesting topic
that I think would help a lot of people.
Let's start with the pros of dividend stocks.
I think I'm just gonna go through all
of the pros, and then all of the cons,
because otherwise I'll probably lose track of where I was.
I tend to do that in my videos.
I don't know if you've ever noticed that.
Occasionally, I'll skip over a bullet, or something,
because I'm just like going too fast between them.
Okay, the first pro to dividend stocks is
that shareholders can take up consistent income
from the stock market.
Some people like this because it can
be very passive, especially if you
have your dividends automatically reinvesting.
You don't even need to worry about getting
that dividend check, or doing anything with it.
You just set it, and you forget it.
Some people like very passive investments,
that they don't even have to think about.
Dividend stocks can be a great passive investment
for you, if that's what you're looking for.
You get those dividends, that are either paid quarterly,
or yearly, and it's consistent income
coming from the stock market, and you don't even need
to touch it or do anything with it,
for the most part, if you have it set up
to automatically reinvest those dividends.
The second pro to this is that profitable companies
frequently increase dividends, so as their profits
are increasing, their dividends can increase, as well.
The next one is that more stable
and established companies offer dividends.
When you're investing in these
more stable, established companies,
there's significantly less volatility,
as compared to investing in, maybe like a high-tech stock
or any of those NASDAQ technology stocks.
There is less volatility.
That does end up being a con on the list over here.
We'll explain that, but they end up
being kind of very slow moving stocks.
They don't do a whole lot for the most part.
If you are looking for a very stable investment,
this isn't a bad option, as long
as you're investing in a good dividend stock
and doing your research beforehand.
For the most part, because they're
more established companies, there's
a lot less volatility and risk associated with these.
The thing with dividend stocks that's good is that they tend
to hold up better in a bear market.
If you don't know what a bear market is,
there's a bull market and a bear market.
A bull market is basically, a good market, when stock prices
are moving up overall, and indexes are moving up.
A bear market is when indexes are moving down.
But, in a bear market, they tend to hold up better
because a lot of people who invest in dividend stocks
are investing for the long haul.
The other thing is because a lot
of people, in a bear market, will flee
to dividend stocks as a safety net.
When they don't know what to do with their money,
they don't want to be invested in high-risk companies
at that point, so they'll kind of take a safe haven
in some of these dividend stocks.
They can be, especially utility stocks, too.
A lot of people like going to utility stocks,
in a bear market, and a lot of utility stocks
are dividend stocks.
That's a good advantage, too, is
they hold up better in down market.
They're actually more tax efficient
than bonds, or other ordinary income.
That's simply because of the tax structure.
They're actually taxed at a lower rate
than ordinary income, or income from bonds.
Investors also like dividend stocks because you're paid
in two ways, or you can be paid in two ways.
If the stock price goes up for that year,
you've been paid by that difference
in whatever the stock price was,
at the beginning of the year.
Then also, you're getting paid
those regular dividend payments.
You're getting paid in two different ways,
one being stock price and number two
being those cash dividends, whether you're taking them
as a cash payment or reinvesting them into more stock.
Dividends can also allow you to hedge your bet.
The example of this would be, let's say you have a stock
and for the year, the stock fell four percent.
But, the stock actually paid a three percent dividend
on that stock price for that year.
You're actually only at a one percent overall loss,
because that three percent dividend offset
that four percent loss on stock price.
Dividends also allow you to take advantage
of compounding, if you reinvest
in those dividends every quarter, or every year.
I'm sure you've heard about how good
compounding interest can be, over time.
If you want to get involved in compounding,
dividend stocks with the dividend reinvestment
is like, one of the best ways you can do that.
The last one, is that they're actually
inflation resistant, for the most part.
That is because as prices rise overall,
the profits of these companies tend to rise.
Dividends are generally based off
of the profits, of a company.
As the profits rise, naturally the dividend payments
should rise, as well, making dividend stocks
a little bit more inflation resistant,
than non-dividend paying stocks
or maybe smaller capped stocks.
Those are like the pros of dividend stocks.
Now, we're gonna get into the cons
of the disadvantages, of dividend stocks.
One of the main disadvantages that I see,
and this is something that people don't realize,
is that dividends are not guaranteed.
Just because a dividend is paying, just because a company
is paying a dividend right now,
doesn't mean they're gonna continue to pay it.
That's because a dividend can be reduced
or eliminated, at any given time.
The other problem is around diversification.
I'm sure you've heard this saying before;
don't put all of your eggs in one basket.
You want to be spread out across many different industries.
You don't want to be all involved in one industry.
The problem is that companies that pay high dividends,
are usually these old-school industries
and utilities, for the most part.
That doesn't really give you adequate diversification.
If you are investing in dividend stocks,
I wouldn't recommend putting all of your money
into utility stocks, in case that industry doesn't
perform well, or whatever you decide.
You may not want to have all of your investments
in one industry, and it's kind of hard
to get adequate diversification because a lot
of these dividend stocks are in the same industries.
The other disadvantage is that faster growing,
small cap stocks, with more upside potential,
a lot of those NASDAQ technology stocks,
they rarely pay out dividends because a lot
of those companies aren't even profitable yet.
Dividends are paid based off on company profits,
and they're for more established companies,
because not every stock, I'm sure you know this
by now, but not every stock pays a dividend,
especially newer companies and high tech companies,
because they're generally not even turning a profit.
Because they are more established, more stable companies,
they actually lag in performance and growth,
for the most part, when you compare them
to some of those high tech or small cap stocks.
They also are likely not going
to just completely bottom out,
or fall in stock price, or do anything crazy.
There's not a lot of volatility, so that can be
an advantage, if you're looking for a lower risk investment.
They also can be kind of like a sleeper stock,
where they're not doing a whole lot,
when you're checking the stock price every couple days,
or whatever, they may not even be moving, for the most part.
You've got to kind of look at what they're doing year
to year, because they're a very long term investment.
The other thing, I don't even know if this is even,
I just drew this on here because I was doing research,
and one of the articles I read mentioned this,
but they are riskier than a high quality bond.
If you're looking for completely low risk investments,
or the lowest risk possible, dividend stocks
are actually riskier than a high quality bond.
It's just something to consider.
I threw that in there.
The other thing is that high dividends
can actually be misleading to an investor.
If you saw, so let's say you had a company
that was paying a cash dividend, or a dividend
that was a dollar amount per share, okay.
And we'll say that the stock price was $50 a share,
and they paid a one dollar dividend each quarter.
I'm just making these numbers up.
I'm not saying this is typical.
And then let's say the stock starts to perform terribly,
and the stock price falls to $25 a share,
but they're still paying a one dollar dividend per quarter.
All of the sudden, that dividend doubles.
Basically, that stock, it appears
to be paying double what it was before.
People might see that and think,
oh this is a great stock to invest in,
they're paying a great dividend.
But the reality of the situation is,
that stock is only paying that dividend,
it only appears to be that much higher
because the stock price was cut in half.
Dividends can be misleading based
on the dividend yield calculation.
I actually talked about this more
in my other dividend stock video.
Like I said, at the end, I'm going to have that as a card,
so if you want me to explain that better,
I'm not going to get into it in this video,
cause I already touched on it in that video.
Just check that video out if
you want more information on that.
The other thing is that the tax rates
for dividends can change any time.
It's only right now that these tax rates
are better for dividend stocks,
as compared to ordinary income or bonds.
At any time now, they could change that,
and they could make dividends be the same tax rate,
or even a higher tax rate than bonds,
and other ordinary income.
That's not something you can just rely on,
as a given, it could change at any time.
Then the other thing, and this may be a pro
to some, and a con for others.
I put it over here, on the con side,
because they do grow slowly, and that
makes them a very long term investment.
If you're not looking to invest long term, you know,
ten plus years, or whatever, five to ten years,
or ten plus years I would say,
I mean if you're not investing for as long
as five years, if you're planning
on using that money within the next five years,
I wouldn't do these long term investments.
You're talking more five plus, at the minimum.
The longer you let them grow, the more the compounding
takes place, and the more you're making.
They're very slow, at first, so if you're investing it
for just a couple of years, you probably
won't even see much of a difference, over a couple of years.
They are a long term, slow growing investment,
which may be a con for some.
That's pretty much all I got for this video, guys.
That's the pros and cons of dividend stocks.
Like I said before, if you guys have questions
about the stock market or any of the topics I cover
on this channel, please feel free to drop me
a comment below, and I will answer the comment
or I'll make a video about the topic.
And then the other thing I wanted to mention too, guys,
if you're interested in learning about trading
in the stock market, I do have a stock market trading guide,
which talks about technical stock analysis,
which is the type of analysis I use when determining
when to buy and sell stocks that I trade.
I'll have a link to that in the description, as well,
and they're should also be something popping up
on the screen here, as well, to tell you more about that.
That's pretty much all I got for this video.
If you guys did enjoy it, I would appreciate it
if you drop me a like, and then you can subscribe
to be notified of future uploads.
Thank you guys for watching the video.
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