Edward Flores's Avatar
published in Blogs
Mar 04, 2021

Why it Pays to Invest in Dividend Stocks Over the Long Term

Dividend-paying stocks have a sizeable fanbase among seasoned investors. Companies that offer dividends tend to be established, consistent, and in possession of a steady cash flow, making them low-risk, low-volatility investment options. Where smaller, more volatile companies can placate shareholders with higher returns, larger companies often use dividend payouts to entice new investors and hold their existing ones.

These low-risk options may not work for every investment approach, but dividend-producing stocks can offer great benefits under the right circumstances – especially for portfolios built for the long-term. Beyond the ability to rely on these semi-regular payouts as an income stream – a strategy favored by retirees – dividends are an excellent vehicle for compounding earnings through reinvestment. While it may mean eschewing the instant gratification of immediate returns, reinvestment done properly can compound earnings far beyond the dividend payments on their own.

A Charles Schwab study of two hypothetical portfolios using returns data from S&P 500 Index and S&P 500 Total Return Index from January 4, 1988 through August 29, 2017 – each with an initial investment of $10,000, but one reinvesting all dividends and another reinvesting no dividends – neatly illustrates this point. The “hypothetical S&P 500 Index fund in 1988 would have swelled to more than $180,000 by mid-2017 had dividends been reinvested,” but taken on their own, the dividends would only have totaled $95,000.

While dividends are valuable without reinvestment, it is important they outpace or match the rate of inflation in order to maintain their purchasing power. Schwab notes the S&P 500 has managed to do this since 2012, providing ideal performance over that time span. The S&P 500 provides additional value to investors because “of the 500 large-cap stocks tracked by the S&P 500, more than four-fifths pay dividends,” making it an ideal place to both gauge performance and easily locate dividend-paying stocks.

Another option for reinvesting dividends is through a DRIP, or dividend reinvestment plan. These plans dispense with quarterly checks and instead automatically reallocates dividend earnings to purchase new shares for the investor. Most are company-run, which means commission-free purchasing power and, in some instances, the opportunity to buy shares at a discount determined by the company. While investors are responsible for taxes on the dividends – dividends that never manifest themselves as cash – DRIPs offer a win-win, giving companies the opportunity to generate equity capital while investors enjoy the benefit of convenience.

The power of compounding makes dividend stocks an attractive option for investors. While dividend stocks may not carry the allure of massive short-term returns, their ability to generate multiplying value over time means they should be a consideration for any investor’s portfolio – a slow-and-steady-wins-the-race choice that long-term investors love.

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Related Tickers: VIG
John Jacques's Avatar
published in Blogs
May 16, 2022
A.I. Stock Market Predictions: Head & Shoulders

A.I. Stock Market Predictions: Head & Shoulders

Statistics for the Head-and-Shoulders Bottom Pattern The days where only hedge funds used algorithms to trade stocks are officially over. Now retail investors can use Artificial Intelligence (A.I.  Here’s an example of the algorithm in action: Late last year, Tickeron’s A.I.
Edward Flores's Avatar
published in Blogs
Apr 29, 2022
How to Become the Millionaire Next Door

How to Become the Millionaire Next Door

The Golden Gate Bridge is always a fixture of these walks too, one of man's most beautiful creations.  As we were walking, at one point she turned to me and said, "Man, I'll never have a million dollars."" My girlfriend is 27 years old and works as a graphic designer, making about $75,000 a year.
Sergey Savastiouk's Avatar
published in Blogs
May 16, 2022
When Is the Next Recession Coming?

When Is the Next Recession Coming?

However, we also know that economists predicted 22 recessions out of 11 that took place since 1945. Are there real recession signs we should watch for?Indeed, the answer is yes, and here are a few very important ones: The first one is almost obvious and known to everyone – it is the Fed.
Sergey Savastiouk's Avatar
published in Blogs
Mar 14, 2023
How to Start Trading Penny Stocks

How to Start Trading Penny Stocks

Penny stocks have long been marginalized within the professional investment community, oftentimes being painted with a broad brush of simply being “too risky.” Leonardo DiCaprio’s depiction of the penny stock peddling conman, Jordan Belfort, in the Wolf of Wall Street certainly didn’t help.Here are four reasons to start trading them now. Reason #1: Let’s State the Obvious -- Penny Stocks are Cheap A single share of Apple Inc. costs over $350.
Dmitry Perepelkin's Avatar
published in Blogs
Mar 14, 2023
5 Habits that Lead to Successful Investing

5 Habits that Lead to Successful Investing

To consistently make money in this industry, you need emotional fortitude, an analytical mind, and a willingness to self-reflect. Despite trading and investing being two different activities, these principles can be applied to both.Conversely, investors with good habits often become great traders.  Rather than full sentences for titles, we’ve labeled each of our top-five investing habits using a single word principle.
Allana's Avatar
published in Blogs
Mar 23, 2023
What’s the Difference Between Data Analytics and Machine Learning?

What’s the Difference Between Data Analytics and Machine Learning?

Artificial intelligence (AI) technology is developing rapidly.Data mining can deliver raw numbers, but it does not necessarily provide actionable insights. Structure is necessary to taking abstract information and extracting commonalities, like averages, ratios, and percentages.
Sergey Savastiouk's Avatar
published in Blogs
Mar 13, 2023
4 Tips for Fast, Effective Stock Analysis

4 Tips for Fast, Effective Stock Analysis

With just a few clicks, an investor can search for individual stocks, categories of stocks, sectors, or investment themes, and then he or she can conduct a full range of technical and fundamental analysis within seconds.All powered by Artificial Intelligence.  Below, we give you 5 tips for fast, effective stock analysis using Tickeron’s Screener.
Sergey Savastiouk's Avatar
published in Blogs
Mar 20, 2023
5 Golden Principles in Investing

5 Golden Principles in Investing

You have enough faith in that stock, based on research, that the return will equal or exceed the investment.  Do unto others.The principles outlined here will ensure that happens.  Principle #1: Diversification Investors can’t be one-dimensional when constructing a portfolio.
John Jacques's Avatar
published in Blogs
Mar 24, 2023
If Hedge Funds are Using AI to Invest, Why Shouldn’t You?

If Hedge Funds are Using AI to Invest, Why Shouldn’t You?

Some of the world’s biggest financial institutions have devoted multi-million dollar budgets to developing algorithms that can find patterns in the market, identify trends, and perform automated trading designed to take advantage of even the smallest price movements. The AI revolution is so big that as it stands today, the world’s five biggest hedge funds all use systems-based approaches to trade financial markets.Indeed, quantitative trading hedge funds now manage $918 billion (according to HFR), which amounts to 30% of the $3 trillion hedge fund industry – a percentage continues to grow with each year that passes.
Sergey Savastiouk's Avatar
published in Blogs
Mar 15, 2023
The five most important Lessons Learned After 10,000 hours of Trading