I will start by stating two simple facts: My ivestment style is buy-and-hold, and I only invest in long-time dividend-paying companies (reinvesting those dividends) who also have a history of increasing their dividend pay-outs year-over-year.

Why am I telling you that information?  So that you will have a better understanding of why I can say that in this economy-with the housing and credit debacles, the earnings issues, and the interest rate cuts-you have many excellent opportunities to invest for the future.  Simply put, using my own personal ivesting style as a guide, there is no better time to invest in a company that owns a high-yield dividend payout combined with a beaten-down share price.

 The first reason is quite simple–compunding.  As time goes on and I get a dividend paid to me, that pay-out is automatically converted into additional shares and added to my current holdings balance.  Now if you consider that the lower a stock is trading, the more shares that the dividend will purchase.  And as time goes on, the additional shares will earn future dividends, in turn leading to even more shares being added to my balance with reinvesting.  Now, what happens as time passes, and the economy recovers, and the market starts recovering?  You guessed it, all of those shares I acquired by reinvesting my dividends are increasing along wth my original investment.

 The other reason to buy now is almost just as simple.  Dividend yield is calculated as the ratio of pay-out to share price, and that number also factors into the overall return valuation of a company’s stock.  So, in good times a high dividend yoeld increases the return valuation, and in not so good times (like this one) the high yield helps to offset any negative return, and in some cases may even help keep the stock’s return valuation in positive territory.

Now, there are plenty of other schools of thought, but when you have the benefit of time, and a struggling market in front of you, this is one strategy that can provide the security that most people are after while the potential for some realy satisfying returns in the long run.

This entry was posted on Monday, May 12th, 2008 at 3:36 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.