Four tips for aspiring dividend investors

Dividend investing tips

Today, I wanted to share a few dividend investing tips.

Investing can be challenging at times, especially when markets are volatile.

With that in mind, here are four tips to help you focus on the long-term goal: financial freedom.

Be patient

Patience is absolutely essential if you want to be a successful dividend investor.

Dividend investing is not a get-rich-quick scheme. In fact, it’s entirely the opposite.

You’re not going to get rich overnight.

In reality, it will take multiple decades. That is a long time, and many investors don’t last the journey.

However, if you can stick it out, the rewards are worth it.

The power of compounding over a 30+ year period, is truly quite incredible.

I’ve seen this first hand, in my time working on high-net-worth portfolios.

My own grandfather also put together a multi-million dollar stock portfolio, over a period of around 30 years, with minimal effort. Time and compounding did the bulk of the work for him. The key was patience.

Diversify your portfolio

This is another really important concept.

No matter how much research you do, things can go wrong in investing. It happens to everyone, including the pros. Just look at Neil Woodford’s Provident Financial debacle.

To lower your stock-specific risk, you need to diversify your portfolio.

Ideally, you want to be holding 20+ stocks.

When you’re just starting out, this can be complicated. It’s not economical to own 20 stocks if your portfolio is only worth £2,000.

If your portfolio is small, consider investing through investment trusts, funds or ETFs until it increases in value.

Avoid over-trading

A portfolio is like a bar of soap. The more you touch it, the smaller it gets.

So, avoid over-trading.

The more you trade, the more fees you’ll rack up. Fees will bring down your long-term returns.

Just because a company is experiencing short-term difficulties, doesn’t mean it should automatically be sold. Often, you’re better off holding on to the company and pocketing the dividends while you wait for things to improve.

Stick to the strategy

Lastly, stick to your investment strategy.

At times, this will be hard.

Dividend stocks are not always in favour.

When growth stocks are in vogue, dividend / value stocks can be massively out of favour.

However, research shows that dividends generate a large part of total investment returns over the long term.

Furthermore, the results that can be generated when dividends are reinvested can be spectacular.

So focus on your long-term goals and stick to your strategy.


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.

More from Edward Sheldon, CFA

Why have National Grid shares fallen 23% since May?

This week, I spent some time looking at National Grid (LON: NG)...
Read More

Leave a Reply

Your email address will not be published. Required fields are marked *