More often than not, dividend stocks are the foundation of successful investment portfolios. Aside from the fact that dividend-paying companies have handily outperformed non-dividend-paying stocks over the long run, dividend stocks bring a number of other advantages to the table that investors can appreciate.
For starters, dividend-paying companies often have a time-tested and profitable business model. In other words, a company wouldn’t be consistently sharing a percentage of its earnings with shareholders if its management team and board didn’t foresee continued growth and profitability in the future. Thus, when you’re buying into a dividend stock, you’re usually purchasing a company with a stable business and a relatively clear long-term outlook.
Secondly, dividend stocks can really help take the sting off of inevitable stock market corrections. During the fourth quarter of last year, the stock market underwent its steepest correction in a decade. Considering that it’s impossible to predict when a correction will occur, what will cause it, how steep the drop will be, or how long it’ll last, regularly paid dividends can help calm the nerves of skittish investors and hedge against some of the potential short-term downside.
Arguably most important of all, dividend payouts can be…
reinvested back into more shares of a dividend-paying stock through a dividend reinvestment plan, or DRIP. A DRIP is a commonly used strategy by money managers to compound wealth. It allows investors to increase their ownership in dividend-paying companies, which in turn leads to larger payouts in a repeating pattern.
Two dividend stocks yielding over 10% to consider buying right now
But there’s a catch with dividend stocks — namely, that yield and risk tend to be correlated. We, as investors, want the highest yield imaginable with the least risk possible, but things don’t actually work this way. Instead, extremely high-yield dividend stocks (i.e., yields of over 10%) tend to be the riskiest of all. That’s because yield is a function of share price, so a struggling business model might look like an income bargain when it’s actually a value trap.
However, there are two ultra-high-yield dividend stocks that appear reasonably safe and offer intriguing value for patient investors with a low-to-moderate appetite for risk…
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