Dividend growth investing is a strategy that has many benefits.
Regular cash payments and compounding power are two key benefits that are often discussed.
However, when the stock market is falling, a whole other set of benefits comes to light.
One such benefit, is the fact that a focus on dividends can make it much easier to stick to your investment strategy. Here’s why:
The capital gains investor
If your sole focus is on capital gains, market volatility can be nerve-wracking. For example, just recently, the Dow Jones experienced its single largest one-day drop ever. At one point in the day, the index was down 1,597 points, or 6.3%.
It’s easy to panic during such volatility, if your focus is on capital gains. When your pension is at stake, a hit of that magnitude can be concerning. All of a sudden, you’re wondering if you should sell up, and get out of the market in case there are further falls.
The dividend investor
However, when your focus is on dividends, you approach the stock market with a completely different mindset. Will a market fall affect your income stream? In most cases, probably not.
With dividends as your focus, market volatility becomes a lot less scary. If anything, it can be viewed as an opportunity. Lower share prices mean higher yields on offer. That means opportunities to continue building your income stream.
The upshot is that a focus on dividends takes a lot of the stress out of investing. By simply asking yourself whether market volatility will affect your income stream, it can completely reframe your investing mindset.
The end result is that when you’re focused on building an income stream, it’s much easier to stick to your investment strategy. By focusing on the dividends side of the equation, you’re much less likely to do something irrational when volatility appears, such as sell your stocks at exactly the wrong time.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.