Dividend stocks can be one of the most secure bases for an investment portfolio. In fact, in the past, dividend stocks were often the cornerstone of a so-called “widow’s portfolio,” because they would continue to generate income for people who were no longer working, or who had never worked. Though few people discuss dividends today, they can still be a great backbone for a healthy portfolio.
One great thing about dividends is that most platforms make it easy to reinvest them. With a DRIP, or dividend reinvestment plan, the small dividends are used to purchase more stock. This means that an investor’s share in the company can continue to grow, or the dividends can be used as income, depending on preference. Most money managers are big fans of DRIPs and advise clients to use them.
In addition to generating lots of income for investors, dividends are also just a sign of a healthy company. Think of it this way: if the board can authorize sharing profits, the company must be doing well. Stocks that are known for their dividends are generally sturdy, well-run companies with sound business practices.
Dividends aren’t just generated by traditional shares of stock, however. REITs, or real estate investment trusts also pay dividends. In fact, REITs pay some of the highest and most regular dividends taken proportionally as a percentage of the price-per-share. Other investments that tend to pay healthy, regular dividends include banks and other companies in the financial sector, along with tobacco and telecom stocks.
Some industries are not known for producing great dividend stocks. These include the biotech sector. However, one unicorn in that industry is Gilead. Unlike most pharmaceutical companies, Gilead reliably generates about $3 billion annually in sales. This is due mostly to the HIV medications it produces.
Similarly, dividends in the world of mineral mining aren’t exactly common. Precious metals don’t really generate growth; in fact, companies are unwilling to flood the market with the product they mine. Southern Copper, however, is another exceptional company. Because of this large company’s reliable yield and the constant industrial demand for copper, paying dividends is no problem. In fact, the market for copper is expected to grow by more than 100% over the next 5-10 years.