Disadvantages of only Investing For Dividends
Buying dividend stocks can help you create a passive cashflow, but there are some disadvantages to that strategy. Like all other strategies it comes with good parts and bad parts.
The great thing about buying dividend stocks is that you can get a monthly cash flow without having to worry about picking stocks that will go up. As long as the company is stable and not going down it can be very profitable.
It is also a lot easier to manage a dividend portfolio because you simply have to find a List of dividend stocks then investing in the ones which produce the biggest payouts.
However this is not always the best way to look at it. By only looking for stocks which produce a high dividend you may not be getting into the best investments. Sometimes companies give their investors a nice dividend to hide the fact that the company might not be the best thing to invest into.
One way to solve this problem is by using techniques such as the Price to Earnings Ratio in order to help pick stocks that are likely to appreciate in the near future. This lets you create your own guidelines which will help you determine what stocks are just not worth getting into.
A second problem with just buying dividend producing stocks is that dividends are not the only way to get money out of a stock. Selling naked puts and covered calls can be extremely profitable.
This is why instead of simply buying the stock that gives off the biggest dividend; I like to look for stocks which offer great dividends, great fundamentals, and high option premiums. That way I can win in all 3 ways.
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