Cons Of Investing for Dividends, and What to Do About it
One strategy to produce a consistant income from the stock market is by investing in dividend stocks, but this strategy does come with some disadvantages.. Just like other strategies there are pros and cons to using it.
The best part about income investing is that you can still make money even if the stock you buy does not appreciate. The company just has to not go down.
It can also be very easy to manage a dividend portfolio because all you have to do is to find a List of dividend paying stocks and only investing in the ones which give you a great payout in a stable company.
The biggest con about this is that it can narrow your view. Simply by only investing in stocks with the highest dividend you may run the risk of not getting into the best investment. Many times stocks that offer a high dividend only do because they are bad investments and there would be no one would invest in them if they did not.
One way to solve this problem is by using techniques such as the Price to Earnings Ratio in order to help pick stocks that are likely to appreciate in the near future. This lets you create your own guidelines which will help you determine what stocks are just not worth getting into.
The other disadvantage to regular dividend investing is that you lose sight of other ways of pulling money from the market. Selling covered calls can be much more profitable then dividends.
These reasons are why instead of just buying the stock that gives off the highest dividend; I like to look for stocks which offer great dividends, great fundamentals, and high option premiums. That way I can win in all 3 ways.
