There are different types of stocks listed on stock exchanges that have different characteristics and give different types of returns. Some stocks tend to perform better than other traditional stock over a period of time. We as investors always seek out those stocks that can give consistent returns over a period of time and continue to grow. ‘Dividend stocks’ are such stocks that can be an excellent way to generate stable income and continue growing your investment portfolio over long periods of time. Dividend stocks are usually the stocks of the well-established companies with a long and consistent track record of distributing dividends to their shareholders.
A chunk of net income that a company distributes among its shareholders period is called dividend. Generally, the established companies give dividend payouts to their shareholders, not the new and fast-growing companies. It is because these companies feel that it would be beneficial to use their profits in the company’s business and operations. There are many dividends paying stocks or companies in the Indian equity market that are well-known for paying consistent dividends to their shareholders.
Most investors make fixed, consistent income through government bonds, treasury bills, and corporate bonds, we can say it, through money-market instruments but, when it comes to wealth creation, none of them is comparable to the dividend stocks, Here, we’re going to discuss the benefits of investing in dividend stocks and why one should consider investing in it.
Benefits of Investing in Dividend Stocks
- When it comes to long-term investing, the dividend stocks can be especially rewarding. Companies usually pay dividends through cash, stocks, and other different ways. When a company is to pay dividends, it has to physically come up with the cash that investors can receive. So, either you will receive divided or not. To maintain credibility amongst investors and in the market, the company will try to maintain consistent dividend payouts to its shareholders that would benefit you in getting fixed income hassle-free.
- In the stock market, investors who are looking to earn some passive income can benefit from dividend-paying stocks. Although traditional income investment options like bonds and CDs pay fixed returns, dividend stocks pay regular dividend payouts that also grow in value over-time. So, even the stock seems to be going nowhere; you can sit back and earn passive income in the form of dividends while seeing your stock grow in value with time. So, dividend stock is an ideal choice not only for regular income but also for capital appreciation.
- Investors who have retirement plans can benefit from investing in dividend stocks. Some companies offer dividend reinvestment plans which investors can use to build up an investment portfolio of dividend-paying stocks that allow them to have a large number of shares by the retirement age. Over time, these reinvested dividends make your investment grow faster with the compounding interest.
- Dividends received from dividend stocks are exempted from tax. It is because the company of the dividend stock you invested in already deducts dividend distribution tax (DDT) before making payment. However, under the Finance Act 2016, the dividends shall be liable to a tax of 10 percent if the aggregate amount succeeds Rs. 10,00,000. For instance, Mr. Mishra received a dividend of Rs. 15 lakh from investments in Indian companies during the year. Since the dividend amount exceeds Rs. 10 lakh, he will have to pay taxes at 10 percent interest on the excess income from dividend payments. In this case, the additional income will be Rs. (15-10) lakh i.e. Rs. 5 lakh. Hence, the payable amount will be Rs. 50,000.
Over the years, the returns received from dividends have been a significant contributor to the net returns produced by the equities security. Historic data has revealed that in general cases, the stocks with high & sustainable divided leads are more resistant to a decline in price than lower-yielding securities. When a company is paying consistent dividends to its shareholders, it indicates the ability of the company to grow in time.
With this in mind, you should check if there’s a real-merit to the dividend investing or not. Besides, past performance is no guarantee of future results. Nevertheless, what historic data tells us is that dividend stocks are good for long-term investing. It may help you to tilt the risk-reward in this unpredictable market.
I hope, this article helped you in understanding whether to invest in dividend stocks or not. Anyways, if you have any queries or would like to suggest something then do not hesitate to mention in the comment section given below.