What are good long term investing strategies for dividend income?

I'm a 21 year-old college student looking to start investing for the long term. One of my goals is to invest in stocks that pay higher dividends so I can have additional income many years down the road. I've considered dividend reinvestment plans, direct stock purchase plans, and different types of mutual funds. I currently have a small brokerage account invested in a Target Date Fund, but this is tailored more for retirement purposes. What are some of the best high-dividend investments that I can make while I am young and have a longer time-frame?

Investing, Asset Allocation, Stocks
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August 2017
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If you are a young investor starting out with little capital, look at dividend paying exchange traded funds (ETFs).  This way you can buy a basket of dividend paying stocks with one transaction.  You can do a Google search and find many dividend ETFs.  I have also included a website below that list many dividend ETFs.  But it is not only about the "high" dividends, but the overall return known as the Total Return.  Because even if you have a 7% dividend, if the fund or stock declines -20%, did you make money?

And the higher the dividend, theoretically, the higher the risk.  Very large, strong companies don't have to pay higher dividends as many investors prefer safety.  Just like bonds, investment grade bonds pay a lower yield than high yield junk bonds.  This is because junk bonds have to pay higher yields to attract capital while the strongest investment grade bonds (companies) don't.  This is somewhat true with stocks as well.  So don't get lured by the dividend alone.  Look at the underlying securities/stocks within the ETF.

This is not how I manage money, as dividend income is secondary or even incidental as many times it is about the company itself.  Some of the greatest growth companies don't pay a dividend and I don't want to avoid them just because of this.  Apple just began paying a dividend a few years ago & Amazon doesn't pay one, but they are both great companies.  And there are many others.  So you may want to consider a combination of growth ETFs and income ETFs, especially at your young age.  As you grow your portfolio, you can add individual positions.


Hope this helps and best of luck, Dan Stewart CFA®

August 2017
August 2017
August 2017
August 2017