“One man’s meat is another man’s poison.” “One man’s trash is another man’s treasure.” We’ve probably heard of these two idioms somewhere; the same applies to investing and trading.

Not everyone can be patient and hold stocks for the long-term – it depends on a number of factors and usually, either age or capital is an issue. Likewise, not everyone can handle the pressure of day-trading – looking at the stock market charts, stock prices and making snap decisions are not suitable for some of us.

If we were to ask successful investors and traders, they would almost always tell us the same story. Their strategies might not work for everyone simply because we all have different time horizons, investment objectives, capital, risk preference and tolerance, and the list just goes on.

The global economy is slowly recovering, undoubtedly, especially after the Straits Times Index broke the 3,100 mark last Friday (17 February 2017). But there are still so many unanswered questions.

How many times will the US Federal Reserve (US Fed) raise rates in 2017? How will Trump‘s policies affect the global economy? Will bonds in Europe and Japan continue to be negative?

In this uncertain and volatile climate, many investors (and maybe even traders) might rush to holding more dividend stocks. Popular local financial blogger AK is huge on dividend stocks, simply because to him, investing for income is a very good way to achieve financial freedom. But how do we know if dividend stocks really suit us? Here are some guidelines.

I’m willing to hold stocks for a long time

How long is considered a “long time”, we might ask. In the case of dividend stocks, most of them are usually blue chip companies who constantly have sizeable net profits.

Nevertheless, they pay dividends only on a quarterly basis, half-yearly or yearly basis. With this in mind, a “long time” usually mean holding the dividend stocks for as long as they would hand out a few rounds of dividends, at the very least.

But most people can’t wait that long, which is probably one of the biggest reason why dividend stocks might not be for everyone. Patience and a sizeable amount of savings in the bank are probably two of the most important requisites for anyone investing for income.

Also, reinvesting dividends can greatly increase the compounding effect of holding wonderful dividend stocks.

I don’t like to constantly monitor the stock market

Do you still remember the first time you’ve ever invested in a stock? Did you check its stock price almost every single hour? Investing in a dividend stock is very different. We have to be willing to hold for the long-term and not constantly monitor the stock market.

This is not just because dividends are only paid out at specific times of the company’s financial year but also because looking at the stock prices might affect us emotionally. And what will happen if we get too emotional? We make unnecessary decisions.

Of course, this is not to say that we shouldn’t monitor news about the company. That’s totally different. While we want to hold the dividend stocks for the long-term, even blue chip companies can fall. And when that happens, we definitely wouldn’t want to be the last ones to exit. But monitoring the stock prices won’t do anything to help us, except probably causing us to sell just because of a decline in price.

We must remember, a decline in stock prices doesn’t mean that the company’s value has fallen. It just means that the market is pessimistic. If the company is truly valuable, stock price declines will just be temporary and dividend payouts won’t be affected.

I prefer a consistent and stable income stream

Only receiving dividends from our stock holdings might not be the most attractive for some of us, simply because there is a huge gap in between payout dates. And it’s understandable.

Some might say that receiving dividends can be likened to receiving our monthly salary at the end of every month. The only difference is that our monthly salary doesn’t require us to put in capital in the first place!

Therefore, rather than thinking of dividend payouts as our “salary”, think of it as the company giving us part of their quarterly or yearly profits in return for our confidence in its business (which what it really is).

Of course, dividend stocks of blue chip companies usually don’t offer a lot of capital gains as compared to small- or mid-cap growth and value stocks. But the stability (albeit boring) and consistency of receiving dividends are preferred by defensive investors who are investing for income and ultimately, financial freedom.

Learn how to invest for income with The Fifth Person’s Dividend Machines


Interested in learning how to pick out wonderful dividend stocks from the stock market and investing for income? The Fifth Person has opened their popular class, Dividend Machines, targeted at helping income investors pick out dividend stocks. At the price of US$297, you’ll be granted instant access to the full Dividend Machines training, Q&A support from trainers, training and course lifetime updates, and a full-day LIVE workshop. This is a one-time fee and there will be no sales-pitch whatsoever. Click here or the button below to learn more (registrations close on 26 February 2017 2359hrs and won’t open till 2018 or later).

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