Many times, dividends are overlooked when it comes to investing. People often chase growth and forget about dividends. But what if dividends can save you in uncertain periods and protect your portfolio, what would you do? Below I list a few reasons why investors should also add dividend stocks to their portfolios.
1. Dividend-paying companies have strong balance sheets and free cash flow statements.
For the companies to pay dividends to their shareholders, they need to generate cash from somewhere in their day-to-day business operations. Only when the company has determined that they have a very sound and strong free cash flow, in which they have nowhere else to deploy the capital as of now will they distribute the extra to the shareholders in dividends.
2. Companies that pay out dividends tend to be mature and well-established.
Well-established companies are companies that have been around for a very long time. These companies have already defined that their business model is very sound and has an edge over all their competitors. They tend to be monopolies in their field of expertise and since they are dominant in their fields, even if a competitor comes and tries to overtake them, the company may even end up buying out the competitors since they have excess cash they have been paying out to shareholders. As a result, they may even increase their dividend to shareholders in the future.
The list can go on and on...
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