Dividends4Life: Dividend Stocks and the Comatose Investor

Dividend Stocks and the Comatose Investor

Posted by D4L | Tuesday, October 26, 2010 | | 0 comments »

Dividend-paying stocks have a reputation of being slow, dull, and stodgy stocks, not particularly exciting prey for the active investor. After all, these are the stocks you just sit back and watch, collecting your check in the mail, right? No reason to buy and sell them at all, just buy and hold forever? Not necessarily! There is a lot of opportunity in dividend stocks to pursue returns, perhaps more than you might realize. I have worked with these stocks a lot, and have often thought to myself, "Someday I'm going to write all this down...". So, beginning today is a series of short articles discussing what I've learned about dividend stocks, how they REALLY work, and an examination of the basic strategies, of which "buy and hold" is only one - and sometimes, the LEAST profitable.

Since an individual stock cannot be trusted to follow its ideal price curve between dividends, averaging by diversification is the only choice. Buy a group of different stocks, preferably in differing sectors, all paying a high dividend, and hold them. The dividends become an income stream, and the yield-binding and diversification protects you from volatility in your capital. Sounds good, right? Indeed, it is good, and this is the strategy of many investors who seek the highest income from a pool of capital which must be preserved. The key property of this strategy is that no trading is needed. This is the "comatose investor portfolio" - the ideal portfolio for the investor who might lapse into a coma at any time and could not trade their account. Awakening ten years in the future is no problem if you have the coma portfolio! With careful selection of stocks yielding between about 5 and 15 percent, an investor can put together a portfolio which beats bank 3% CD yields by a big margin, with risk considerably less than growth

Source: My Happy Trading

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