Like many other savvy investors—those who’ve worked hard made some intelligent investment decisions, and reaped the benefits—you probably rely on the financial perks of dividends. And if you’re just looking to learn a bit more about finance and investment, dividends are pre-scheduled payments offered by companies to shareholders. In the long term, dividend payments, which typically amount to a small percentage of a total investment, can produce a substantial sum of income for shareholders.
The problem, however, is that the stock market is inherently volatile. When uncertainty, volatility, and other factors drive stock prices down, investors panic, and dividends often reduce in price or cease altogether; fluctuations in stock prices can wipe out the value of dividends. Thus, if you rely on dividends as part of your income, you should have a plan in-place to protect your dividend payments and financial independence—especially in the face of a sagging market.
Let’s take a look at how you can protect your dividend income!
Invest with Reliable Companies
Many companies offer dividends, but not all these companies are reliable.
To be sure, a lifetime of dividend payments may not help you in the event that the company at-hand closes its doors, and stockholders are left with valueless shares in an entity that no longer operates. As such, you should make sure that your dividend payments come from reliable companies. It’s alright to explore non-blue-chip investments—not every business can be as sound as Coca Cola—but you should be cautious when you do so; it’s never a bad idea to seek the advice of a trustworthy financial professional.
Diversify Your Investments
This suggestion is multi-layered. The first way that you should diversify your investments to protect your dividend payments is by assuring that you’re not overextended in one professional sphere. In other words, don’t put all your eggs in one basket; invest in food and drink companies, technology companies, medical companies, and any other type of company that you can think of. But be sure that you maintain a diverse portfolio. In the event of a market downturn, some industries are hit harder than others; if you’ve put all your money into one of these industries, your dividends and your financial future will be compromised.
The second way that you should diversify your investments is by pursuing non-stock options; many of these options are comparatively secure and fruitful, and they can help to amplify and protect dividend profits by further growing these profits. Bonds are worth exploring, as are high-yield savings accounts, which presently offer as much as three percent interest.
Save, Save, Save!
Last but most certainly not least, you can protect your dividend payments by saving them. You can safely reinvest them in stock to a point, but you should also be certain to put a solid portion of these payments away for a rainy day.
For as fruitful as the market is now, a downturn will come at some point in the future; today’s international business landscape brings with it a dizzying number of complex financial factors, all of which affect stock prices. You need to prepare for the day when dividend payments lessen or cease, and you can do so by saving as much money as possible.
The more you save now, the less you’ll have to worry about in the future.
These tips are sure to help you protect your dividend payments and be as financially independent and comfortable as possible. Thanks for reading, and here’s to making money on the market!