Is it advisable to buy shares for your dividend? This stock market strategy is indicated for the most conservative investors whose objectives are destined for the long term, having remuneration each year and regardless of the evolution of stocks in the stock markets.
Normally stocks generate a profitability that varies between 2% and 10%, depending on the companies.
Which are the most profitable companies? In Portugal we have companies that distribute dividends with a profitability above 5%. Navigator, Sonae, CTT, Mota Engil, are the main ones.
When is it most advisable?
This strategy allows the investor to take advantage of this remuneration more quickly in his account, since he will receive it earlier, selling his rights; although, on the contrary, he will not be able to make it profitable through the new shares, if the stock market trend is high. His reinvestment, on the other hand, will cause his position to be expanded with more securities, but with the latent danger that a downward movement of prices will decrease the real value of the dividend. If you don’t opt for the stocks, you will be diluting your participation in the company.
Shares with dividends are particularly suitable for investors with a more defensive profile, looking for the long term and therefore may have some economic contributions every year regularly and independently of the evolution of stocks in stock markets. Furthermore, in those cases where they are deficient and do not wish to sell their shares, they will always receive returns that can minimize possible losses in their portfolio.
buy stocks for their dividend
On the contrary, going for this strategy may not be the best option for those who seek quick returns as they seek to make gains in a few days and this trading strategy is not the best way to obtain because it can take many days, even weeks, until they recover the amount invested. On the other side it is not a very common practice among traders who have long positions (buy) weeks before the payment of dividends, and take advantage of eventual increases that can generate stocks to sell the days before their payment.
a serious mistake that small investors face when they resort to this type of securities for the simple fact of distributing dividends, without analyzing them properly, is that they can develop a tendency of falls that harm their objectives. And, as a consequence, don’t look at other companies – which without distributing dividends – show an impeccable technical aspect that invites their purchases.
Advantages and disadvantages
The advantages of buying shares that distribute dividends in the stock markets are very attractive to many investors who trust their savings in shares, although their advantages have already been exposed, it is not advisable not to reject the risks associated with those who select this investment strategy.
First, it will be necessary to point out what the advantages are:
You can offset your losses with a regular payment each year, and this even leads investors to make money using the dividend payment, even if you lose value in the listing.
With the guarantee that the companies that distribute dividends are companies of a certain solvency, almost all quoted on the stock market, and that rarely have significant price collapses.
It is a way to have a constant “income”, which contributes a little more security to the savings invested and to take advantage of possible stock market increases.
On the contrary, it will be necessary to keep in mind that investment in these stocks has a series of risks that should not be ignored:
The market risk: the risk of prices falling according to the market
Credit risk: the company has internal problems and no longer presents positive results, leading to non-distribution of dividends.
In cases where its remuneration is low, below 3%, and it is not worth to decide on its purchase, because there will probably be more to lose than to earn, having an irrelevant remuneration.