Why You Should Buy Dividend Stocks

There are two big reasons why you should buy strong dividend-paying stocks. First of all, a stock that pays a dividend has to have the cash on hand. They can't fake it. If a company is paying out 50-60% of its earnings as dividends to shareholders, then they can't rely on bogus accounting to get through tough times like Enron and Worldcom attempted to do. By virtue of paying a dividend alone, a company has to stay focused and disciplined, making sure that it always has the cash on hand to fulfill its obligations to shareholders.

Another important reason why you should consider purchasing dividend paying stocks is because it enables you to purchase additional shares during recessions. Of course, this assumes that you are reinvesting your dividends instead of electing to take the cash payouts. Let's say you own 1000 shares of Coca-Cola. During the recession, the price of Coke fell to about $40 per share. Because your 1000 shares earn $470 every three months, you could plow that money into $40 shares, which would be worth much more once the recession clears. Those $40 shares that you were able to buy with reinvested dividends during the recession are now worth just shy of $70. Not a bad investment.

The folks over at The Intelligent Speculator wrote a fantastic article about the philosophical approach that one should take toward purchasing dividend paying stocks, and I highly recommend that you visit their website by clicking here: http://www.intelligentspeculator.net/investment-talking/how-to-build-a-sustainable-dividend-portfolio/ .

Setting Dividend and Other Financial Goals

The Passive Income Earner just put out an excellent post about maintaining ambitious financial goals as you grow older and hopefully more affluent. Although no one's income throughout life matches a perfect arc, hopefully you're making more money when you're 35 than when you're 25, and hopefully you're making more when you're 55 than when you're 45. And it's easier to let the increase in income lead to you consume higher-end items and allow lifestyle inflation to creep into your life. While there is nothing wrong with this per se, it does not allow you to build passive wealth via dividend paying stocks. Instead of allowing yourself to spend $200 more on frivilous crap as your salary grows, get in the habit of constantly putting money aside and building wealth via dividend stocks. If you can get just 3% annually from your dividend stocks, that means that each $200 contribution will throw off $6 in income each year while you sit on your rear end, not touching your principal investment for the rest of your life. If you can get in the habit of regularly collecting this $6 for life annual income streams, and do this year in and year out for several decades, you will wake up one morning to find yourself quite rich. If you want to read the great piece at The Passive Income Earner, be sure to visit the site here: http://www.thepassiveincomeearner.com/2011/06/financial-freedom-at-45.html .

Stocks, Inflation, and Dividend Stocks

Mike at The Dividend Guy Blog wrote a phenomenal article that I can't recommend highly enough. In it, he discusses the invaluable role that dividends play in fighting inflation and riding out market slumps. He does a fantastic job of pointing out the fact that gold itself does not throw off income--it's only worth what someone is willing to pay for it. Dividend paying stocks, meanwhile, earn income and throw off dividends even in recessionary times (hopefully!) and can allow you to buy extra shares when the prices are low. This is truly the secret to steadily building long-term wealth. Especially if a company regularly raises its dividend, you will watch the money get regularly deposited into your accounts while you do nothing and watch the money grow. Not a bad deal--however, it does take a significant amount of money invested for the dividends to substantially change your lifestyle. It takes tens of thousands of dollars invested to regularly throw off hundreds of dollars in come each quarter. While it is a difficult journey, once you reach the point where you are generating income, you will be in much healthier financial shape. If you want to read a great article on the subject, check out Mike's article at The Dividend Guy Blog here: http://www.thedividendguyblog.com/investing-myths-debunked-regarding-inflation/ .