Why Dividend Stocks

I'm sure many of you played Monopoly when you were younger, some may even remember the Chance card to the left. It wasn't near as good as getting the "Pass Go and Collect $200", but it wasn't a bad card since it added a little more cash to your pile (and it beat getting a lousy 2nd place in a beauty contest). This card didn't mean much to me when I was younger, but it makes a lot more sense these days. What I really enjoy about this is how the man (Rich Uncle Pennybags) is kicking back in his chair, legs on his desk, smoking a cigar. You would have a hard time finding an image that better personified a dividend investor, or what a dividend investor is striving towards.

This is what I want in 25 years. I want to be kicking back and relaxing while high-quality, financially sound companies provide me with constant and ever-increasing flow of passive income. I don't want to be concerned with the day-to-day fluctuations of the stock market. I want to be on the golf course, on a boat, at a ballgame, or on my couch enjoying life while companies work hard to increase my income.

Sounds like a great dream right? I think so too, and you'd be surprised how easily this can be achieved through a dividend investing strategy. We just need the following to accomplish this dream:

Identify Dividend Growth Stocks:

We need to identify quality stocks that not only pay a dividend, but also increase that dividend on a yearly basis. For instance, Proctor & Gamble has paid a dividend for 120 consecutive years with well over 50 consecutive years of dividend increases. This is the type of company we want to invest our money.

Reinvest Your Dividends:

The most powerful wealth generating aspect of a dividend portfolio is reinvesting your dividends. This creates the wonderful compounding affect that, over time, is going to allow us to be like Rich Uncle Pennybags above. When you reinvest your dividends, you are adding more shares of the company to your portfolio. The more shares you have, the more dividends you get paid, which gets reinvested into even more shares, which captures even more dividends.... and so on and so forth. And the fact that the dividend payout is increased every year just adds to the compounding affect. It is a truly astounding, yet simple investment tool, that can make us all a lot of money over a long period of ...

Time:
This isn't a get rich quick scheme. This is a slow process that's going to take some time. But it is a simple, time-tested investment strategy that, if executed correctly, can very easily pay us huge rewards in the end. This strategy is for the patient. And the more time you have, the less money you need to reap the rewards.

Example: If you had invested a mere $50 per month -- that's $600 per year -- in dividend stocks from the age of 8 to 13, and re-invested those dividends, you will have accumulated over $1 million by the time you reach the age of 65.*  Think about this example carefully if you have young children!


* Based on historic 11% annual return rate for dividend-paying stocks with dividends re-invested