Investing In High Dividend-Paying Stocks

Investing in high dividend-yielding stocks is considered to be a strategic way to make a reliable and regular source of passive income to build wealth. Armaan Madhani explains how and why, fundamentally strong and consistent dividend-paying companies can be sound value bets for investors in the long run

- Armaan Madhani

Capital appreciation has always been the blue-eyed boy of investment returns. Dividend earned on equity investments plays a second fiddle role and therefore usually gets ignored. The rally in domestic equity markets over the last two and a half years has led many novice investors to surmise that return from equity investment primarily comes from an increase in share prices. They consider dividends to be a miniscule cherry on the cake that barely contributes to the overall value that is created over the investment horizon.

This assumption might be true to some extent, particularly in the shorter period and that too during a bull run. However, in the longer run, dividend plays an equally important role in terms of the potential return an investor obtains from an investment in equities. High-quality and consistent dividend-paying companies have always been looked upon as sound value investment bets by investors across the world for decades.

Investing in high dividend yielding stocks is considered to be a strategic way to make a reliable and regular source of passive income to build wealth. Unlike earnings, dividends can’t be manipulated and moreover they also help preserve the purchasing power of investment capital, particularly in cases where inflation is on the rise. No wonder John Bogle, the founder of the Vanguard Group and the father of index investing, would frequently say, “Dividends are an investor’s best friend.”

Dividends Can Make You Rich