Dividend paying stocks review
When it comes to investing, there are a lot of skills needed in-between to drive out success. assets managers and asset management firms in entirety are big strategies. Every market move is a prediction, nevertheless, there are some that are much more reliable than others. It is ALL about how one can beat down the risk to a more bearable stance.
Anybody with enough financing intelligence has a hedge, the next move is how to secure the needed capital. I have come to realize investment especially when thinking long term needs enough capital. I think I talked about this in one of my recent articles, how some investment no matter how good the strategy is can be wasted years
I was doing some research and I got to find out an investment pattern which I can't say that I actually knew not of, maybe I wasn't putting so much concerns into it. An investor must become a good friend with the calculator. Which is better in the long run, which is less riskier but can still pull out a good result over time.
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I was making one such calculator, first let's look at which is better. Before then, maybe a little overview on dividend paying stocks. These are company issued stocks that pay dividends annually in general. It is like holding a stock of a company and getting some incentive at the end of the year irrespective of whether the stock prices increase or decrease. So what are its advantages over other stocks or investment strategies? Let's find out.
Using a compound interest strategy, investing on assets that pay 15% annual ROI and investing in dividend paying stocks that pay 5% annually which will be most profitable in 5 years?
This is a big question here, which would you go for? The first thing I have realized is that dividend paying stocks don't pay high ROI's. It fluctuates in that 5% region. Assuming we are working on N100,000, let's apply the compound interest formula A = P (1 + r)^n. To save some time, this shows that at the end of 5 years. The 15% annual compounding interest will be N201,000 in approximation while the dividend paying stock will be N127,000 in approximation.
The former produces N101K profit while the latter produces N27K. Ok, we are seeing a N74K interest gap here. What if the dividend stock grew in the process, let's say a 10% growth within the five years? This will shift the entire calculation. From my realized calculations, the 15% annual paying asset will still remain at N201K while the dividend paying stocks move up to 241K in approximation.
The former stills remains and N101K interest while the latter produces N141K interest, a N40K interest margin. When calculating dividends stocks growth of the former against the latter, we are talking of N114,000 extra realized profit.
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There are other factors to look out for here, what if the stock price declined by 5% to 10% within this 5 years. This is when it boils down to the next question; which is less riskier but can still pull out a good ROI compounding results. This is where the stock itself matters. I just came to realize the reason why big companies or individuals prioritized investing in certain stocks. Let's take for instance, Warren Buffett doesn't joke with Coca-cola. This company has become a household name that keeps producing green candles year in year out.
To conclude, let me add, there are a lot of things to consider when delving into the world of investment, especially those for the long run. reputation can be a valuable criteria over huge ROI promises. This is where the DYOR (Do your own research) is a big criteria. opportunities will always be there to leverage only if you understand how to go about and find less riskier companies who, although paying less, can perform better.
On the other hand, I am seeing the rise of reputable assets especially in the FinTech industries that are paying good ROI. To grow wealth, you can’t evade knowledge; it is called financial intelligence.
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