Interest is every money holders best friend, it is gaining a percentage of money because you simply have money. Dividend stocks are exactly that while also holding shares and ownership in a company. The investor benefits from share prices as well as a percentage paid to them every quarter just for holding shares.
The advantages to holding dividend stocks would make any person wonder why they are not more popular? There are risk in dividend investing as well as not investing due to inflation eating away at every dollar a person earns. Therefore investing in a safe way would be the best plan for anyone just wanting to keep there money above inflation, so what are the risks associated with dividend stocks or not investing?
Dividend payments can be cut at any time. The companies paying dividends are not required legally to keep up dividend payments or to increase the payments. A company can eliminate dividends whenever it wants, therefor dividends should not be viewed as a permanent income. Many companies will try not to cut dividends if they can help it, because this can cause investors to sell shares and thus lowering the price per share.
Inflation will slowly eat your dollar. If a person decides to not invest their money or to invest it in something that does not keep up with inflation, then capital is being lost. The purchasing power of the dollar decreases by a percentage every year due to inflation, thus by investing a person can cut that decreases or eliminate it. By investing in dividend stocks share prices in a company can increase as well as receiving cash every quarter.
A drop in share prices. This can be triggered by a number of different variables such as an increase in interest rates. The higher interest rate causes a company with a high amount of debt to pay more off the next time before they can borrow. Therefore a companies profits can be hurt and thus share prices may drop. A company is not immune to going under, and in this case a person can lose all shares without selling and lose all their money.
Knowing the potential risks when investing will help to guide a person in the decisions they make when investing in specific companies. Many factors are simply out of the investors control, but they should still know the effect these factors can have on them and their money. The best advice when investing is to gauge all the potential risks and do extensive research on any company you would want to place your money in.