If you’ve ever had occasion to look into the academic research comparing different types of returns from stocks that have different characteristics, as a class, dividend stocks tend to do better than the average stock over long periods of time.
There are a multitude of reasons as to why this occurs but it’s a powerful enough force that many investors have done quite well for themselves over an investing lifetime by focusing on dividend stocks, specifically one of two strategies – dividend growth, which focuses on acquiring a diversified portfolio of companies that have raised their dividends at rates considerably above average and high dividend yield, which focuses on stocks that offer significantly above-average dividend yields as measured by the dividend rate compared to the stock market price.
I happened to be up working late on launching the new asset management company my family is establishing this year and, despite it being 3:46 in the morning, am not quite ready to go to sleep. I thought it would be useful to sit down for a moment and break out five reasons dividend stocks are so intriguing to investors who prioritize long-term wealth accumulation.
My hope is that by giving you a basic framework, you can understand some of the forces at play; how human nature, accounting, business management, and the stock market all come together in a way that can allow a prudent investor to enjoy streams of passive income from his or her holdings.