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Is Dividend Investing The Way Forward?

Is Dividend Investing the Way Forward?

While a large number of investors follow the model of “buy low, ride the price up and sell,” more and more individuals are beginning to shift toward longer-term strategies.

The market is going through one of the most volatile periods in recent history. As a result, investing in the junior energy space has become high-risk to say the least, and a number of portfolios have suffered monumental hits. With commodity price forecasts down and investor euphoria over resource plays fading, many are now focusing on a longer-term investment model: dividend stocks.

A dividend is a fraction of a company's earnings that is returned to shareholders, usually in the form of cash. The return on investment for dividends is an added incentive to own stock in stable companies, even if they are not necessarily experiencing high levels of growth.

There are two types of stock dividends: preferred dividends, which are determined by a fixed rate, and common dividends, which are determined by a variable rate based on the company's latest profits.

What is the appeal of dividends?

It is unsurprising that after two years of monumental price shifts, investors are seeking safer alternatives. As a result, larger companies that offer consistent returns on low-risk investments — and stand apart from the high-risk environment of today's junior markets — are becoming increasingly appealing.

Their appeal is largely based on the peace of mind that they offer. Those invested in such companies can be secure in the knowledge that the value of their initial investment is unlikely to drop significantly, and that they will likely profit from dividend payments. Investing in larger companies can also allow investors to enjoy growing dividends that provide even more long-term value.

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