I love dividends. And I love dividend growth stocks! Here are 5 reasons to invest in dividend stocks.
First, what is a dividend? By definition:
A dividend is a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves).
I have been investing in dividend stocks for almost 10 years now.
I’ve built a six-figure portfolio that generates a yearly average of over $1,000 per month in dividend income!
That is passive income that I earn while I sleep!
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5 Reasons to Invest in Dividend Stocks
1) Cash Flow into Your Wallet
Dividend provide you with a flow of cash right into your wallet.
In other words, real money deposited into your account. With enough dividend stocks in your portfolio, you can see significant cash coming in each month.
You can use this money for everyday expenses, paying down debt, or leisure and fun.
Thus, if you wanted to, you could retire and live off dividend income!
2) Passive Income
Dividend income is 100% passive income.
This means you do not have to put in any physical labor into earning this income.
Unlike a job, which you have to work a specific number of hours each day, dividends are passive income you earn while you sleep.
For example, for my June 2022 dividend income I earned nearly $2,000 in dividends that month.
I didn’t put in one ounce of labor. I simply went to bed, woke up un the morning, and the money was in my account. No sweat.
3) Dividend Increases
Many companies increase their dividends each year. This means larger paychecks for you.
It is the equivalent of getting a raise each year only you are not working a job.
Check out a group of stocks known as Dividend Aristocrats. These are dividend stocks that have raised their dividend payments each year for 25 years and more.
And if you like that, check out a list of Dividend Kings. These are dividend stocks that have raised their dividend payments each year for 50 years and more!
For my own example, over the last 8 years, companies increasing their dividend each year alone added over $1,700 in dividend income to my portfolio.
At a 3% yield, that would be the equivalent of me having to invest $57,500 in additional cash.
But I didn’t have too. Dividend increases alone added increased my dividend income!
4) Compound Interest
Albert Einstein once called compound interest the 8th wonder of the world. He wasn’t too far off.
You can harness the power of compound interest and supercharge it with dividend stocks by reinvesting your dividends!
For example, I received over $70,000 in dividends over the last 8 years of investing. I put all those dividends right back into buying more dividend stocks.
That added thousands of dollars in yearly dividend income just from reinvesting my dividends!
My portfolio grew in value and my annual dividend income increased. Save, invest, and repeat.
Put your money to work for you. Money makes money that makes money.
5) Tax Advantages
Dividends are treated differently when it comes to taxation (here in the United States as of 2022).
Qualified dividends are taxed at capital gains tax rates, which makes dividends more a tax efficient form of income.
For example, for individuals whose ordinary income tax rate is in the highest brackets (35% or 37%), qualified dividends are taxed at only a 20% rate.
For individuals whose ordinary income tax rate is below 12% to 35%, qualified dividends are taxed at 15% rate.
Finally, for individuals whose ordinary income tax rate is in the 10% or 12% tax brackets, they pay no tax on qualified dividends.
Conclusion
And there are 5 reasons to invest in dividend stocks!
Dividends are a great source of passive income. It is always a good practice to have multiple sources of income outside your job.
Passive income is the essential key to financial independence and freedom.
If you are interested in beginning your own journey into dividend growth investing, personal finance, and financial freedom, check out my Getting Started page.
So, what do you guys thinks? Do you like dividends? Also, got any other great reasons to invest in dividend stocks?
Let me know in the comments below!
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