So what is so special about dividends and dividend growth in your portfolio? Aside from what dividends might tell you about a company, and why they'll boost your returns, what benefits do dividends and dividend growth have for you, in your day to day struggle?
The 3 P's
- Psychological. Psychologically, dividends are a great friend. When the markets are haywire and your stocks are down day after agonizing day, your dividends will still arrive on time. Not to despair, your dividend payment will likely be raised in due time. Dividends are like a hot tea on a cold winter's night, comforting you always and allowing you to stick to your game plan knowing that they will always rein your stocks back in over the long term.
- Permanence. Dividends supply permanence to your analytical portfolio tracking. What I mean by this is that when I feed a new value that represents a recent dividend increase into my portfolio spreadsheet, instantly I am being paid more money per year than I was yesterday, and I really like that. Whether a company increased its dividend, or a dividend was paid in one of my DRIPs, it activates a permanent positive change to my financial well being forever. Simply stated, the market could rise 5% in a single day and I would not be as happy as I am when a company I own comes in with a strong dividend increase. The dividend increase is extremely likely to be a permanent change, whereas the fickle market could tank 10% the next day.
- Payment. I like paper gains in stock prices as much as the next guy, but sometimes times get tough and you aren't saving as much money to invest anymore. Your employment income might take a temporary hit, or an unexpected expense crops up taking away from your capital available to invest. It's times like this when dividends are 'money in the bank'. Close your eyes to your portfolio for a little while; heck go on vacation. I'll bet when you get interested again your dividends will have magically piled up some money in your pocket to do as you please, whether that is to invest it or book another week in the Mayan. I'd prefer the latter during weather like this....