Dividends And Investment Strategies Article Reviews Example
Dividend is the portion of a company’s revenue paid out to investors as cash or stock value. With the fluctuating factors of the financial market, investing with the aim of a regular income has its drawbacks. A healthy company is indicated by the dividends. The primary factor in considering any investment is that of risk. The article seeks to review dividends as an investment strategy.
Investors can share in the profits of a company in various ways. Dividends are a better and more direct way to share in the profits. It is important to consider the plan that is alive to the financial market trends and its determinants in choosing an investment plan. The uncertainty of taxes makes dividends investment more suitable for the long-term. At high tax rates, dividends become less profitable and can be reinvested back into the company in anticipation for a favorable tax season and avoid devaluation. Dividends are taxed the year they are received.
Dividends are more profitable in the long-term and not suitable for investors seeking regular short-term income unless the financial market conditions are most favorable. Dividends allow investors to have control over their share of profits or rather stocks as it provides freedom to choose whether to re-invest the money back to the company or for other purposes (Baker. 2009).
In the report, yields and payout have been listed. Yields measure the dividend paid over a year divided by the prevailing stock price and payouts measure the percentage of the company’s profits paid out as dividends to its shareholders. High dividend yield stocks have more benefit in the long-term than low dividend yield stocks. Investors have to be aware of any fall in share prices as it affects the high dividend returns. Over the long-term stocks, reinvested or new addition dividends are more beneficial than decreasing dividends stocks. According to the article, this was proven in the period 1971-2010. Dividend-paying stocks tend to prove its resilience in the changing market, and this enables its recovery from harsh times. One of the major challenges of dividends is the falling share prices that prevent high dividend earnings. As far as still investment is concerned, yields generate more income compared to dividends (Spare. 1999).
About the choice of company of investment, one with a proper projection and diverse opportunities is recommended. That can be deducted from the five-year total turnover of different companies that operate differently.
Dividends are a better way to ensure eventual profitability and to avoid insignificant returns from an investment in the fluctuating financial market other than savings and bonds. In today’s economy, taxation varies, and interest rates can hit the low. It is preferable to have an investment strategy that ensures the investor remains profitable in the long run. The emergence of the recent financial crisis acted to prove the benefit of investing in dividend over shares.
Dividend is a good way to counter the risk of unpredictability and to maintain profitability especially in the top-down or bottom-up investing. When investing, there should be a clear comparison between short-term results and long-term opportunities.
Baker, H. K. (2009). Dividend and Dividend Policy. New York: John Wiley & Sons Publishers.
Spare, A. E. (1999). Relative Dividend Yield: Common Stock Investing For Income and Appreciation (2nd ed.). New York: John Wiley & Sons, Inc.
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