For All The Aspiring Young Dividend Investors Out There
If you have been thinking about the question, are dividend stocks good for young investors? Then you have come to the right place.
Because I have several reasons why I think young investors should seriously consider dividend stocks.
Here are my reasons…
Why Dividend Stocks Are Good For Young Investors
Young investors should consider buying dividend stocks because:
- Seeking dividend stocks encourages good investment choices
- Building a dividend portfolio is easier than you think
- Reinvesting dividends has long-term benefits
- Taking dividends in cash can supplement your future income
- Starting early and exercising patience can make you rich
Next, let’s go through these reasons one by one. And before we wrap up, I will also examine the opposing view.
Because not everyone agrees with my opinion. Imagine that!
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
1. Seeking Dividend Stocks Encourages Good Investment Choices
When you are young, it’s hard to block out the noise.
I mean your buddy is telling you he’s making a bundle with cryptocurrencies. And another friend cashed in on a stock getting pumped by a mob of people on Reddit.
Well, that may be the case. However, I bet these friends are in the minority. And there are just as many people that lose money in the same way.
So, as a young investor, if you focus on stocks like the Dividend Aristocrats and the Dividend Kings. Being companies that pay higher dividends every year. And have done so for many years in a row.
You will likely be better off in the long run.
Because these businesses use their free cash flow to benefit investors by paying them regular dividends. Most without running a risky dividend payout ratio.
As a result, it forces young investors to do one thing. That is, focus on companies that have withstood the test of time.
The businesses that prevail through recessions and financial crises. Thus, providing excellent long-term total returns for their shareholders.
Pro tip: Not all stocks that pay dividends are as safe as the Kings and Aristocrats.
So, watch out for stocks with high dividend yields. Those stocks with a dividend yield of more than 5%-6%.
Okay. Should young investors buy dividend stocks? That is today’s topic.
And we are just getting warmed up. So, let’s move on to point number 2…
2. Building A Dividend Portfolio Is Easier Than You Think
As a beginner, you may not know how to build a starter dividend portfolio.
However, I’m here to say it’s easier than it seems.
To build your dividend portfolio follow these simple steps:
- Open a brokerage account
- Select and invest in dividend stocks
- Invest regularly
- Reinvest all dividends
- Monitor the portfolio and stocks periodically
You can open a brokerage account at Webull, free of charge. And buy your dividend stocks commission free too.
But, you ask, what about selecting stocks?
Best Dividend Stocks For Young Investors
As I said earlier, seriously consider dividend growth stocks on the list of Dividend Aristocrats and Dividend Kings.
For example, here are some of my favorite stocks that pay dividends from these lists:
- Hormel Foods
- Johnson & Johnson
- NextEra Energy
- Procter & Gamble
- Realty Income (real estate investment trust)
Full disclosure: I own them all. And have held them in my dividend portfolio for a long time.
Most noteworthy, there are some recognizable names on the list. That’s good a thing. Because investing in companies that you are familiar with is a smart idea.
For more dividend stock ideas, you may like the Simply Investing Report & Analysis Platform.
It is perfect for recommendations on the best dividend stocks for young investors. And when to buy them.
Then, what about reinvesting dividends? That topic is next…
3. Reinvesting Dividends Has Long-Term Benefits
Simply put, reinvesting dividends is just taking your cash dividend payments received. And investing that cash back into your dividend portfolio.
It can either be done automatically. Right back into the stock that paid the dividend.
Or, done by letting your cash dividends accumulate. Then, lump sum investing that cash into the stock or stocks of your choosing.
There are several pros and cons to reinvesting dividends. However, I think the pros outweigh the cons.
Thus, here are some of the advantages of dividend reinvestment every young dividend investor should consider:
- An excellent way to compound wealth
- Maximizes total return over time
- Continue investing when you otherwise have no money
- Reduces the risk of spending dividends
- Enjoy the benefits of dollar cost averaging
- Set it and forget it investment approach
- Some company plans offer shares at a discount
- Commission-free share accumulation
- New funds are put to work immediately
But, you don’t have to reinvest dividends…
4. Taking Dividends In Cash Can Supplement Your Future Income
Let’s face it, you are young. However, it happens to all of us. What’s that?
At some point, life is going to get in the way…
Hopefully not, but maybe you suffer a job loss. Or, have an illness limiting your ability to work.
On the other hand, and taking a more positive perspective. Perhaps you start a family. Or choose to work part-time.
Whatever your case might be. The dividend payout from dividend stocks is an excellent form of passive income.
Thus, dividends can be used to supplement your income during a time of need. Or, when you want to cut back your efforts. And are ready to accept a lower income by working less.
All, without needing to sell your stocks. To benefit from the cash they provide.
Next, when you start pursuing the basics of dividend investing at a young age. Good things can happen long term.
5. Starting Early And Exercising Patience Can Make You Rich
Because you wouldn’t be the first investor to get rich from dividends. After all, there are dividend millionaires out there in the world.
Most importantly, you have a valuable asset as a young dividend investor. It is the time required for long-term investing success.
Specifically, the time required to become financially independent with dividends.
And this is how the smartest investors go about building their dividend fortunes. Specifically, they:
- Live below their means
- Regularly invest and reinvest in dividend stocks
- Keep investment costs low
- Defer income taxes
- Have a lot of patience
If you follow these steps diligently, you can get dividend rich too!
Does everyone agree with me? That stocks that pay dividends are good for young investors?
Well, the answer is no.
Because some investors favor growth stocks over dividend stocks. And there is no one correct answer. About the stocks, young investors should buy.
When Dividend Stocks For Young Investors Aren’t The Best Choice
So, it would not be fair if I didn’t tell you this as a young investor. That you will find others that say you
should put your money elsewhere.
Rather than putting it in dividend income stocks.
Furthermore, I can give you 10 good reasons no one should buy dividend stocks. Not even a young investor.
Here’s a small sample of those reasons…
- Investing for growth is superior to income
- Other income investments may be better
- There is a risk to holding individual stocks
- Believing you can’t lose money on dividend stocks
- High-yielding dividend stocks are a bad idea
After all, it’s your money. So, you carefully examine the pros and cons of your investment choices.
Because there are many good reasons to buy stocks without dividends.
Finally, to sort it out and get some help selecting the best stocks. Whether they pay dividends or not.
Specifically, for recommendations on the best stocks to buy. And delivered to your inbox every month.
You may benefit from the Motley Fool Stock Advisor. An excellent resource for young investors hungry to learn.
So, whatever direction you choose to go with your finances. Don’t let the stock market pass you by as a young investor.
That’s all I have. Allow me to offer a few parting words…
Should Young Investors Buy Dividend Stocks?
Are dividend stocks good for young investors? That is the question we have explored today.
And the answer is: yes, they are.
Mainly because of the proven and outstanding long-term wealth-building capabilities they provide.
Thus, by starting at a young age, choosing good dividend stocks, investing regularly, and reinvesting dividends. Young investors can find their way to financial freedom faster.
Thanks for reading. If you enjoyed this article. Then check out all of our…
…for building your wealth with dividend stocks.
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.