Don't let headlines and hype around investing make you lose this dividend
Indian equities grabbed headlines recently when the benchmark index crossed the 20,000 points mark.
The event led to market mavens and folks on the street to start talking about a new India and asking what next.
In the din of voices, with each one clamouring to talk over the other, some fantastic developments went largely unnoticed.
It was a case of hiding in the open.
There for all to see, but visible only to the observant
What are we talking about?
Ponder this
The Nifty Dividend Opportunities Index gave over 35% returns in one year as of September 28, compared with nearly 15% for the benchmark Nifty50 index.
The limelight got hogged by the Nifty 50, but the Nifty 50 dividend index made more money.
The quiet performer went unnoticed in all the noise on business news channels and newspaper headlines, but smart investors registered substantial gains.
The general understanding is that one invests in equities for capital appreciation and fixed-income instruments for steady returns.
This is one of the many instances in the marketplace where conventional wisdom has been turned on its head.
What are Dividend Stocks?
Dividend stocks belong to established companies with a consistent history of distributing a portion of their profits as dividends to shareholders.
These companies typically have a significant industry presence and are at a mature stage, offering less growth potential compared to other emerging market players.
Dividend stocks are of two main categories:
- Dividend Growth Stocks: Stocks with a substantial potential for future dividend rate increases.
- High Dividend Stocks: Stocks with high current dividend rates, though not necessarily with prospects for capital appreciation.
Why Invest in Dividend Stocks
-
Passive Income
Dividend stocks provide a reliable and regular source of income, similar to earning interest over a long period, ensuring a fruitful investment. -
Reduced Risk
Despite market fluctuations, high-dividend stocks tend to retain their value, making them a safer investment option. They regain value even during adverse market conditions, ensuring capital protection. -
Opportunity for Reinvestment
Investors can reinvest their dividend earnings, enhancing their returns through the power of dividend compounding. -
Dual Benefits
Dividend stocks, despite their limited growth potential, still offer the possibility of value appreciation, presenting dual benefits of regular income and potential value increase. -
Inflation Hedge
Investing in dividend stocks, particularly high dividend growth stocks, provides a shield against rising inflation -
Resistance to Market Volatility
With their stability, dividend stocks require less continual monitoring, offering a robust defence against market volatility.
Who Should Consider Buying Dividend Stocks?
Investing in dividend stocks necessitates extensive research and understanding. Although they generally pose less risk, it's imperative for investors to grasp both the advantages and disadvantages thoroughly before adding to the portfolio.
While investing in dividend stocks may not provide the rapid growth potential of other investments, the steady income, reduced risk, and other associated benefits make them a worthy consideration for a balanced, diversified investment portfolio.
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