– How’s it going today, guys? What we’re talking about today are the pros and cons of
buying a dividend stock. I just want to mention, before I get into the video, if my voice is still sounding kinda weird, I have legit been sick for nine days straight now. It’s been awful, I don’t
know what’s going on. I think I have the flu, or something. I’ve been completely wiped out for like, over a week now, and it’s been rough. But still trying to get this
content out to you guys. That’s like my number one goal, or like my number one thing that I do, before anything else,
is get these videos out. Because this is really what I enjoy doing, and I really pride myself
on being consistent with it. Despite being kinda
scratchy-voiced and sick, I’m still gonna get rolling
with the video, here. I did a video already, talking about just dividend stocks, in general. At the end of the video,
I’ll link it up in a card if you guys want to check that out, because that can provide
some other information to you about dividend stocks, in general. This was actually something
that somebody reached out to me, and wanted me to cover, are like the pros and cons
of the dividend stocks. If you were somebody who was going to invest in some of these,
what are the advantages of those and what are the
disadvantages of dividend stocks? Also, I want to mention
too, if you guys have any questions about
investing or any topics, in general, that I cover on this channel, please drop them in the
comments below and I’ll either do my best to answer them in the comments, or I could do a video about it if it’s a very interesting topic that I think would help a lot of people. Let’s start with the
pros of dividend stocks. I think I’m just gonna go through all of the pros, and then all of the cons, because otherwise I’ll probably
lose track of where I was. I tend to do that in my videos. I don’t know if you’ve ever noticed that. Occasionally, I’ll skip
over a bullet, or something, because I’m just like going
too fast between them. Okay, the first pro to dividend stocks is that shareholders can
take up consistent income from the stock market. Some people like this because it can be very passive, especially if you have your dividends
automatically reinvesting. You don’t even need to worry about getting that dividend check, or
doing anything with it. You just set it, and you forget it. Some people like very passive investments, that they don’t even have to think about. Dividend stocks can be a
great passive investment for you, if that’s what
you’re looking for. You get those dividends, that
are either paid quarterly, or yearly, and it’s consistent income coming from the stock market,
and you don’t even need to touch it or do anything with it, for the most part, if you have it set up to automatically reinvest those dividends. The second pro to this is
that profitable companies frequently increase
dividends, so as their profits are increasing, their dividends
can increase, as well. The next one is that more stable and established companies offer dividends. When you’re investing in these more stable, established companies, there’s significantly less volatility, as compared to investing in,
maybe like a high-tech stock or any of those NASDAQ technology stocks. There is less volatility. That does end up being a
con on the list over here. We’ll explain that, but they end up being kind of very slow moving stocks. They don’t do a whole
lot for the most part. If you are looking for a
very stable investment, this isn’t a bad option, as long as you’re investing in
a good dividend stock and doing your research beforehand. For the most part, because they’re more established companies, there’s a lot less volatility and
risk associated with these. The thing with dividend stocks
that’s good is that they tend to hold up better in a bear market. If you don’t know what a bear market is, there’s a bull market and a bear market. A bull market is basically, a
good market, when stock prices are moving up overall,
and indexes are moving up. A bear market is when
indexes are moving down. But, in a bear market,
they tend to hold up better because a lot of people who
invest in dividend stocks are investing for the long haul. The other thing is because a lot of people, in a bear market, will flee to dividend stocks as a safety net. When they don’t know what
to do with their money, they don’t want to be invested
in high-risk companies at that point, so they’ll
kind of take a safe haven in some of these dividend stocks. They can be, especially
utility stocks, too. A lot of people like
going to utility stocks, in a bear market, and
a lot of utility stocks are dividend stocks. That’s a good advantage, too, is they hold up better in down market. They’re actually more tax efficient than bonds, or other ordinary income. That’s simply because
of the tax structure. They’re actually taxed at a lower rate than ordinary income,
or income from bonds. Investors also like dividend
stocks because you’re paid in two ways, or you can
be paid in two ways. If the stock price goes up for that year, you’ve been paid by that difference in whatever the stock price was, at the beginning of the year. Then also, you’re getting paid those regular dividend payments. You’re getting paid in two different ways, one being stock price and number two being those cash dividends,
whether you’re taking them as a cash payment or reinvesting
them into more stock. Dividends can also allow
you to hedge your bet. The example of this would be,
let’s say you have a stock and for the year, the
stock fell four percent. But, the stock actually paid
a three percent dividend on that stock price for that year. You’re actually only at a
one percent overall loss, because that three percent dividend offset that four percent loss on stock price. Dividends also allow you to take advantage of compounding, if you reinvest in those dividends every
quarter, or every year. I’m sure you’ve heard about how good compounding interest can be, over time. If you want to get
involved in compounding, dividend stocks with the
dividend reinvestment is like, one of the best
ways you can do that. The last one, is that they’re actually inflation resistant, for the most part. That is because as prices rise overall, the profits of these
companies tend to rise. Dividends are generally based off of the profits, of a company. As the profits rise, naturally
the dividend payments should rise, as well,
making dividend stocks a little bit more inflation resistant, than non-dividend paying stocks or maybe smaller capped stocks. Those are like the pros
of dividend stocks. Now, we’re gonna get into the cons of the disadvantages, of dividend stocks. One of the main disadvantages that I see, and this is something
that people don’t realize, is that dividends are not guaranteed. Just because a dividend is
paying, just because a company is paying a dividend right now, doesn’t mean they’re
gonna continue to pay it. That’s because a dividend can be reduced or eliminated, at any given time. The other problem is
around diversification. I’m sure you’ve heard this saying before; don’t put all of your eggs in one basket. You want to be spread out across
many different industries. You don’t want to be all
involved in one industry. The problem is that companies
that pay high dividends, are usually these old-school industries and utilities, for the most part. That doesn’t really give you
adequate diversification. If you are investing in dividend stocks, I wouldn’t recommend
putting all of your money into utility stocks, in
case that industry doesn’t perform well, or whatever you decide. You may not want to have
all of your investments in one industry, and it’s kind of hard to get adequate
diversification because a lot of these dividend stocks
are in the same industries. The other disadvantage
is that faster growing, small cap stocks, with
more upside potential, a lot of those NASDAQ technology stocks, they rarely pay out
dividends because a lot of those companies aren’t
even profitable yet. Dividends are paid based
off on company profits, and they’re for more
established companies, because not every stock,
I’m sure you know this by now, but not every
stock pays a dividend, especially newer companies
and high tech companies, because they’re generally
not even turning a profit. Because they are more established,
more stable companies, they actually lag in
performance and growth, for the most part, when you compare them to some of those high
tech or small cap stocks. They also are likely not going to just completely bottom out, or fall in stock price,
or do anything crazy. There’s not a lot of
volatility, so that can be an advantage, if you’re looking
for a lower risk investment. They also can be kind
of like a sleeper stock, where they’re not doing a whole lot, when you’re checking the
stock price every couple days, or whatever, they may not even
be moving, for the most part. You’ve got to kind of look
at what they’re doing year to year, because they’re a
very long term investment. The other thing, I don’t
even know if this is even, I just drew this on here
because I was doing research, and one of the articles
I read mentioned this, but they are riskier
than a high quality bond. If you’re looking for
completely low risk investments, or the lowest risk
possible, dividend stocks are actually riskier
than a high quality bond. It’s just something to consider. I threw that in there. The other thing is that high dividends can actually be misleading to an investor. If you saw, so let’s say you had a company that was paying a cash
dividend, or a dividend that was a dollar amount per share, okay. And we’ll say that the
stock price was $50 a share, and they paid a one dollar
dividend each quarter. I’m just making these numbers up. I’m not saying this is typical. And then let’s say the stock
starts to perform terribly, and the stock price falls to $25 a share, but they’re still paying a one
dollar dividend per quarter. All of the sudden, that dividend doubles. Basically, that stock, it appears to be paying double what it was before. People might see that and think, oh this is a great stock to invest in, they’re paying a great dividend. But the reality of the situation is, that stock is only paying that dividend, it only appears to be that much higher because the stock price was cut in half. Dividends can be misleading based on the dividend yield calculation. I actually talked about this more in my other dividend stock video. Like I said, at the end, I’m
going to have that as a card, so if you want me to explain that better, I’m not going to get
into it in this video, cause I already touched
on it in that video. Just check that video out if you want more information on that. The other thing is that the tax rates for dividends can change any time. It’s only right now that these tax rates are better for dividend stocks, as compared to ordinary income or bonds. At any time now, they could change that, and they could make dividends
be the same tax rate, or even a higher tax rate than bonds, and other ordinary income. That’s not something you can just rely on, as a given, it could change at any time. Then the other thing,
and this may be a pro to some, and a con for others. I put it over here, on the con side, because they do grow slowly, and that makes them a very long term investment. If you’re not looking to
invest long term, you know, ten plus years, or
whatever, five to ten years, or ten plus years I would say, I mean if you’re not investing for as long as five years, if you’re planning on using that money within
the next five years, I wouldn’t do these long term investments. You’re talking more five
plus, at the minimum. The longer you let them grow,
the more the compounding takes place, and the more you’re making. They’re very slow, at first,
so if you’re investing it for just a couple of years, you probably won’t even see much of a
difference, over a couple of years. They are a long term,
slow growing investment, which may be a con for some. That’s pretty much all I
got for this video, guys. That’s the pros and
cons of dividend stocks. Like I said before, if
you guys have questions about the stock market or
any of the topics I cover on this channel, please
feel free to drop me a comment below, and I
will answer the comment or I’ll make a video about the topic. And then the other thing I
wanted to mention too, guys, if you’re interested in
learning about trading in the stock market, I do have
a stock market trading guide, which talks about
technical stock analysis, which is the type of analysis
I use when determining when to buy and sell stocks that I trade. I’ll have a link to that in
the description, as well, and they’re should also
be something popping up on the screen here, as well,
to tell you more about that. That’s pretty much all
I got for this video. If you guys did enjoy
it, I would appreciate it if you drop me a like,
and then you can subscribe to be notified of future uploads. Thank you guys for watching the video.