Dividend Stocks – Good, not Magical

People concerned about an overpriced stock market often ask me whether they should add dividend stocks to increase their returns. When I press further, the logic goes something like this: if the stock market is flat (no growth), at least I get the 3% dividend yield to live on.

Let me start by saying that I like dividend stocks. However, my inner finance geek cringes when I hear people misunderstand how dividends work. When a company pays a dividend, the stock price typically goes down by about the price of the dividend. Why? Money paid out today means there is less money reinvested in the business to pay to shareholders in the future.

Again, it’s not that dividend stocks are bad. They just aren’t magical. Dividends move money around. They don’t create wealth.

So why do I like dividend stocks? Dividend stocks tend to be low priced stocks (a.k.a. value stocks). When you pay a low price, you can expect above-average returns over long time periods.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

By  | October 29th, 2019 | Wealth Management

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.