Dividend stocks are a great way to invest that’s a perfect way of taking advantage of steady cash payments. Most of the time, dividend stocks are companies who are stable and financially secure, and this means that as a shareholder, you can enjoy a steady rise in value over time as the company makes a profit and becomes more successful. It is a win win situation because as an investor you will be able to take advantage of the lower risk this type of investment provides.
Companies who subscribe to this type of investor reward system, such as Coca-Cola raise their dividend payments over time. This means that the investor is usually guaranteed to make more money from their initial investments, because these established companies do not like the idea of disappointing their investors.
Any company who decides to pay consistent dividends is much more likely to be a financially healthy company which you can rely on to provide dividend payments. They will have a constant, rising cashflow and this will always be an advantage to the customers who decide to invest. In terms of stocks prices, dividends stocks are usually at a lower risk of falling to the volatile market than other similar stocks because their yield will hold their value. Due to this, they make a very appealing investment option for many different people in all walks of life.
Compounding
When talking about dividends, compounding comes up often. Compounding explains the situation where you generate earnings and then reinvest those earnings. These earnings will pay out extra money to you as you are reinvesting free capital. It’s like a never ending cycle of profit, rising exponentially every time you add new earnings into the mix. Think of it like a snowball effect, by the end you will have a bigger chunk of money than you started with. An example of compounding in the practical sense would be if somebody offered to give you $100 today, but they said that if you wait, they will double that amount every day for 30 days, and you can take the money in 30 days. Of course, the clear winner here is waiting 30 days because you will end up with a huge amount more than if you took the money straight away. So rather than simply taking your earnings right away, having the patience to wait for a few weeks could earn you much more in the long term.
The more often that you receive dividends and reinvest your earnings, the more money you will make in the long term. Therefore you will want to make sure that you are paying as often as you can into the dividends if you want to see a good return. If you can continually do this for years and years, you could end up making a hefty return.
Plenty of types of investment such as real estate can provide you with a steady income, but some will take you more time and effort than others. If you are a busy person and you spend a lot of time working, you may not want to go into a labor intensive investment like property, however if you have that extra time on your hands it can be a great hobby to work on and make money at the same time.
So what are the advantages and disadvantages of dividend stocks compared to rental property?
Dividend Stock Advantages
Dividend stocks pay in regular instalments, and this will usually come every month or once a quarter. The company who is providing you with the dividend stock will do all the hard work for you and provide you with a cut regularly. You will be paid according to the number of shares you own within the company. For example, if you owned 2,000 shares with a yearly dividend payment of $1, you would earn $2000 yearly. If you decide to reinvest that money right away, you could be looking at a great profit.
Dividend Stock Disadvantages
If the company who is providing you with the stock does not have the sufficient earnings to pay you dividends, they won’t. It means that you are not be guaranteed to receive any dividend. The company can also lower the dividend amount at any time, meaning you could end up not receiving any dividend payment at all.
Rental Property Advantages
When you decide to go into real estate and rental properties, you will likely want to use a house loan calculator first to make sure it is an affordable option for you. If you find that it is, you could purchase a home at auction for $80,000, for example, and then spend $10,000 renovating the space renovating the kitchen. A real-estate agent comes and values the property at $140,000 due to the work you have done, you have made an overall profit of $50,000 after the renovations costs. If you rent out, you can be making $800 a month witch could build up massively over time to give you a great return on your investment – while providing steady cash flow.
Rental Property Disadvantages
The main issue with buying a property to sell on or rent is that there is a risk of the value of the property not increasing or demand in the area not being there when you try to sell. There is also the issue of you having to pay tax on your rental property throughout the year. You will also have to have cash on hand in case any repairs need doing on the property, because that is not the responsibility of the tenant who is living there. Rental properties can be quite rewarding, but do require work.
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