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Dividend-Paying Stocks

"Buy low, sell high" is the mantra of growth investors. For many others, however, the goal is generating income — an ongoing stream of payments.

Earnings, the primary benchmark used for growth investing, can rise and fall based on both developments that are specific to the company and developments that are subject to general market and economic conditions.

Dividends are real; they represent an actual return of capital from a company to an investor. That payment can be reinvested into additional shares of a stock, used to purchase a different investment or kept for ongoing spending needs.

Dividends tend to be reliable and consistent. Companies that have historically paid dividends are highly averse to reducing or eliminating those payouts. As such, relative to growth stocks, dividend-paying stocks tend to be steadier, established entities.

Many income investments are known for increasing their payouts over time, allowing investors not only to generate an income stream, but also to benefit from rising dividends.

Dividend-paying stocks are suitable for investors of all stripes. Young investors can participate in dividend reinvestment plans (DRIPS) that help accumulate wealth over many years. Perhaps that’s why Albert Einstein called compound interest the “8th wonder of the world.”

Growth and income investors seek a combination of dividend payments along with the potential gains that may arise from investing in a stock that also increases its sales and earnings over time.

More conservative investors take comfort in the added safety and reliability inherent in dividend-paying stocks, and those in retirement can utilize dividend payers to build a portfolio that provides the ongoing income required beyond their working years.

Fixed Income and Bonds

Income investors can also buy bonds — which provide a known return for a given period of time. A bond represents debt issued by a company or a government entity such as a local municipality or the U.S. Treasury.

Unlike stocks, bonds have a maturity date — a pre-determined time at which your principal will be repaid. Importantly, bond prices move inversely to yield so that if interest rates rise, a bond's price will fall.

Short-term bonds — a safe haven that may be viewed as an alternative to cash  — offer low risk with a commensurate low return. Long-term bonds offer a higher return but have the added risk of interest rate sensitivity. Interest rate risk does not impact a bond buyer who plans to hold his or her position until maturity.

Bond investors must also understand credit risk. A bond is essentially a loan the investor is making to the issuing entity; as such, the risk of each bond is relative to the credit of the issuer.

Investors can buy bond issues all along the risk spectrum — from speculating on a low-rated corporate bond to generating secure income from a highly rated large cap, to the iron-clad quality of a U.S. government security.

Income Investment Experts

In the dividend-investing world, several sub-sectors are particularly appropriate for income investors, such as utility stocks, real estate investment trusts (REITs) and master limited partnerships. And, of course, there are mutual funds and ETFs that specialize in all income-related areas.

How can you choose among the best dividend-paying stocks? What fixed-income investments are appropriate for your portfolio? How can bonds play a role in your retirement planning?

The experts associated with MoneyShow — those who participate at our conferences and virtual events, appear in our exclusive online videos and contribute to the daily investment advice on our website — include many who are considered the nation's leading authorities on income investing.

From companies that are just beginning to pay dividends, to those increasing their payout, to "dividend aristocrats" that have been paying and increasing their dividends for decades, our experts help you find the best opportunities for your portfolio.