3 Reasons to Own Dividend Stocks

One mistake many beginner investor makes is ignoring dividends. Sure, it may seem dividends are only a small part of any stock portfolio - everyone wants to see the price go up, up and up! But smart investors (or those who want to be) listen up: When it comes to long-term investing, dividend stocks have their advantage - after all, when was the last time someone PAID you for owning something? When doing some stock market investing, it's best to look to the future, and what dividend stocks can do for you. Here are three reasons why you should buy into dividend stocks:

1. (Almost) Risk-Free Stock Market Investing

There's no such thing as 100% safe when you invest, but when a company has enough funds to pay out their investors, then it is most likely a strong company. Most dividend stocks are companies with solid backgrounds, and can withstand most economic situations. Because they are making good profits, and are able to pay their expenses and STILL have excess income to share with their investors, then you know this a great company. Between a company who pays out dividends and one with a stock price that fluctuates - which one do you think has a better chance of protecting your capital?

2. Increase Capital Gains

Some companies offer DRIPs or dividend reinvestment plans. Basically, instead of paying you the cash out, your share of the dividends gets reinvested to buy you MORE stock - that means you are essentially getting stock FOR FREE. And when that stock price goes up, then more capital gains for you. Eventually, this type of plan can benefit you when doing long-term investing.

3. Dividend stocks = passive income

Can you imagine, sitting on the beach, sipping a margarita and money keeps going into your bank account. Dividends are income which are handed to you on a silver platter - without you having to lift a finger! Aside from what you're reaping from increasing stock prices, you get a regular payment in form of dividends. Buy more of the dividend stock and you get even more income.

Do whatever you want with it - use it to pay debt, buy a fancy car or, if you were thinking of long-term investing, set up a system where you take your payments and invest in more dividend stocks. When you have enough shares, well then just keep sipping that margarita on the beach and enjoy your income!

Of course, when the economy is not doing so well, a company can cut back on its dividends. Still, a successful value investing strategy require smart investors know that dividend stocks which have a high yield is a way to collect income from a source which will be around for a long time