Dividend Stocks

Investing In Stocks For The Sake Of Cash Flow

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Dividend Investing Requires A Shift In Perspective

Posted on | June 8, 2011 | 2 Comments

I would guess that 9 out of 10 individual investors look at investing in the wrong way.  9 out of 10 investors view stocks as a means of capital appreciation.  They hope to buy something, watch it rise in value, then sell it for a profit.  This is basically trading, not investing.

There are a number of reasons for this perspective.  Our culture is one of instant gratification.  How many people play the lottery each day hoping to “strike it rich”?  Moreover, individuals are unwilling to put the effort in necessary to warrant sound investing.  They’d rather gamble on the fact that a short term boost in a stock price will materialize than read earnings reports and annual reports of companies to find fundamental reasons for an increase in the value of a business over time.

By emphasizing dividend cash flow versus capital appreciation, it helps force this shift in perspective that is necessary for sound investing.

Working to build a portfolio of companies that pay cash flows to the shareholder is a much different aim than earning a quick buck through a trade as described above.

It changes your views on short term market fluctuations.  Rather than panic during a market sell-off, the dividend investor sees a possible opportunity to allocate more capital at attractive rates.

Dividend investors are not looking for a 40% gain over a period of a few days.  They are looking for 10-20% returns every year for the rest of their life.  They are looking to harness the power of compounding by reinvesting dividends and building gigantic cash-flowing portfolios of well-run companies.

See the difference?  Take an inventory of your current perspectives on investing.  Are you more like a trader or a dividend investor?