Dividend stocks

I’monly20,butmy smartest investment move has been getting into dividend stocks, and I’m reinvesting those dividends. It’s fun keeping up with the companies and their latest developments. The most exciting part is the compounding effect from dividend payments. I’m able to get my portfolio to yield 3%, which isn’t crazy, but certainly is healthy!

THE FOOL RESPONDS >>

Bravo! Dividends are often underappreciated by investors, with many thinking of them as just for retirees who seek income. Investors of all ages should welcome dividend income, though — if only so we can reinvest it in additional shares of stock, to turbocharge our investment returns.

A Heartland Advisors report studying stock market performance over many years found dividend payers outperforming nondividend payers over long periods, and dividend payers offering some protection in market downturns. Simply being a dividend payer is a promising sign for a company, as it means management is confident enough about operational reliability to commit to regular cash payouts.

If your portfolio is worth $10,000 now, and its overall dividend yield is 3%, you’ll collect $300 per year. When you’re older, if your portfolio is worth $500,000 with a 3% yield, you’ll be receiving $15,000 per year — more than $1,000 per month! Best of all, healthy and growing companies tend to increase their payouts over time, which will help you keep up with inflation.