Dividend Investing vs Value Investing
Two methods of making money off of stocks are value investing and dividend investing. One way attempts to buy undervalued stocks sure to take off. The other method attempts to get into stocks that are paying out a monthly income to their stock holders.
Which is the most profitable? Both of these strategies have one weakness and one big strength.
Value investing which involves buying strong companies whose stocks are undervalued has one major advantage. The long term results of value investing are undeniable. Companies that have excellent fundamentals will ususally beat yearly average stock market return in the long term.
This means that it can be worth your while to look at the company. Things like the PE ratio and the book value help an investor to determine how strong the overall company really is.
However there is one big disadvantage to value investing. Investing in strong companies is a long term approach. It is not something that you are going to see the results of in the next few months.
The real benefit of buying high dividend paying stocks is that you are able to see some profits once you get into the stock, without waiting many years. Because stocks will pay a consistent dividend buying good quality dividend stocks helps to produce an income whether or not the stock goes up.
However dividend investing has one big pitfall of its own, it takes a lot of money to make money.
Combining these two strategies is probably a much better option then just doing one. As the stock grows over time so does the dividend and therefore the cash flow can continue to grow.
It can take some time to get a plan like this to work. But it can be a very powerful long term way of saving.
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