three Sturdy Dividend Investing Truths For Your Retirement Plans
I’m glad there haven’t been any market dramas in the past few weeks. The S&P 500 is trading in one of the tightest areas I can remember with no major profit announcements planned, and even Twittersphere is quiet. It’s been a while since Elon Musk started a new memestock or crypto boom …
In any case, such a late news day is worth it. They give us the opportunity to break through the noise of the market and focus on the big picture for our long-term interests. Twenty years from now, tweets from toddlers of musk would be less important. Ultimately, making us successful or destroying us is the basis of our investment.
Now, let’s take a moment to talk about dividend investing today. I’m not going to endorse stocks, and I won’t mention recent dividend declarations. We’ll go beyond that and explain why dividends make the difference between retiring in style and not retiring at all.
3 The Truth About Dividend Investing
Better kind of company
I loved Wolf of Wall Street. Yes, it’s vulgar, and I don’t get any life or investment advice from Jordan Belfort. But he had a quote that I like:
“Money doesn’t just buy you a better life … it also makes you a better person.”
Well, maybe it is, maybe not. But I want to argue that dividends will be a better type of company. That is the reason.
It’s hard to cover up the numbers when you have to make hard cash to pay dividends. Even companies that don’t completely lie to their financial reports regularly expand or obscure the truth. A talented accountant can tailor your reported income to suit your needs. But they cannot make money out of nothing. In order to distribute dividends, the company must have cash.
In this way, the dividend obligation promotes more honest reporting and reduces annoying surprises in the future.
You are the boss
Dividends also enforce discipline and align management with the needs of shareholders.
Everyone knows that the main purpose of a company is to enrich its owners, the shareholders. That is capitalism 101. But there is an “agency question”. The best interests of the owner or shareholder are not necessarily the best interests of the owner who runs the company.
CEOs are known to put money into pet projects, overpaid packages, and wasted empire building. Paying dividends to shareholders at least partially keeps them away from the temptation, forcing them to put shareholders first.
After all, you (shareholders) are the bosses of the company. Not a talking guy in a suit sitting in the corner office. He works for you and sometimes you need to remind yourself of it.
Dividends also give you the opportunity to make a profit without selling your stocks. This is less important for short-term transactions. However, when we’re talking about a good company that you want to own for years or decades, dividends will allow you to enjoy the results of your investment without having to sell your stocks.
I love capital gains. But every stock you sell to meet the cost of living is no longer available for growth and synthesis.
By paying out cash dividends, you can carry long-term winners … maybe for decades or even generations.
Income from dividend investments
Not all good companies pay dividends, and non-payers shouldn’t be automatically excluded. This would have eliminated some of the biggest growth stories of our lives, like Amazon.com and Alphabet (Google).
But I firmly believe that the bulk of your long-term portfolio should be solid dividend payers. They are a better type of company that makes you a better investor.
For safe use
Editor, Green Zone Fortune
Charles Sizemore is the Editor of Green Zone Fortune, specializing in income and pension issues. Charles is a regular Bull & Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.
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