Here are some reasons why you should buy dividend growth stocks
Some stocks pay you just to hold them. Stocks that pay dividends can be a good way to make money without doing anything. They can also protect you from inflation. "Buy low, sell high" is a phrase that is often used to describe a good way to trade stocks. But investors can also make money on the market by getting dividends. Dividends, in short, are a way for companies to share some of their profits with their investors. Shareholders benefit because each share of stock they own gives them the right to a set dividend payment. Companies give out dividends on a regular basis, usually monthly, quarterly, or annually. Dividends can be paid out in cash or in the form of more company stock. Because of this, you can almost think of stocks that pay dividends as a way to make money while you sleep. Growing dividends from good companies can make a big difference in a portfolio and reinvested dividends are a much bigger source of growth than market returns alone. Dividend-paying stocks have been getting a lot of attention lately because they do more than just give you a steady stream of income. They also protect your money from inflation, which makes them perfect for the current market. How stocks that pay dividends protect against inflation In an inflationary environment, it's good for big companies that have a long history of paying consistent dividends every year because they can handle higher prices and even benefit from them. As inflation causes prices of goods and services to rise, a company's revenue, earnings, and dividends will also rise. Looking for a portfolio of stocks with strong cash flows that yield an average of 3% to 4% or more and consistently grow dividends by 5% to 10% each year. These are the kinds of businesses that investors should go after. Many companies with high-dividend stocks have used business models for a long time that work well when prices go up, which helps them make money in the long run. People still have to heat (or cool) their homes, drive to work, and eat, even when prices are going up quickly. Generally, companies in the energy, natural resources, and food and consumer staples sectors have strong pricing power and cost management, which lets them raise prices, keep demand up, and make more money. What investors need to remember Beginner investors should definitely buy stocks with dividend growth, but they should be careful when making investment decisions. Portfolio rebalancing, which is reacting to events as they happen in real-time, can be pricey when inflation is going up. Inflation pressures have been growing for a while, and the prices of many high-dividend stocks already reflect this. In general, the best idea is to think long-term, try to build a diversified portfolio of holdings, and resist the urge to try to time the market and shop around.