Forget lottery jackpots! I’d buy dividend stocks to get rich and retire early

Dividend stocks could deliver significant long-term total return potential.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Winning the lottery jackpot would be a life-changing event. However, the chances of it happening are exceptionally slim. Therefore, it may be a better idea to instead invest your spare change in dividend stocks.

Not only do they offer superior return potential compared to other assets, they trade on low valuations at the present time in many cases. As such, there may be a buying opportunity not only for income investors, but for investors who are seeking to generate capital growth from their portfolio. This could help to bring your retirement date a step closer.

Return potential

Dividend stocks are, by their very nature, likely to appeal to income-seeking investors. They offer a regular dividend that provides a passive income. However, they also offer significant capital growth potential in the long run.

The past performance of the stock market shows that a significant proportion of its total returns are derived from the reinvestment of dividends. Certainly, growth stocks can generate strong returns in bull markets. But the dependency of dividend stocks, and their defensive characteristics in many cases, means that they generate relatively robust returns that can add up when compounding is factored in.

Relative appeal

Dividend stocks offer significantly higher return potential compared to assets such as property, cash and bonds. Low interest rates mean that cash and bonds may fail to generate substantial returns when inflation is factored in. Meanwhile, investing in property can lead to a concentrated portfolio that lacks the diversity offered by the stock market.

As such, dividend stocks could become increasingly popular among investors. Continued low interest rates may mean that income-seekers are pushed towards dividend stocks due to low returns being available elsewhere, while house price growth over the last decade may mean that income shares offer better value for money relative to property investments. Higher demand for income shares may act as a catalyst on their prices over the coming years, and could enable them to produce improving capital returns.

Investment opportunity

While dividend stocks are unlikely to be immune from global economic risks such as a trade war, their long-term investment potential appears to be high. The track record of the stock market shows that while it rarely offers short-term price growth that can compete with the returns available on the lottery, it has always recovered from its lows to post higher highs. This could mean that the high yields and low valuations on offer from a range of stocks makes them highly appealing at the present time.

With investing in a diverse portfolio of shares being cost-effective and simple due to the prevalence of online sharedealing, dividend stocks offer a straightforward means of improving your financial future. Even investing modest sums of money on a regular basis can produce a portfolio that, in the long run, helps to bring your retirement date a step closer.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Retirement Articles

Investing Articles

With £25k, here’s how I’d target a £15,919 passive income every year

Have a chunk of cash burning a hole in your pocket? Here's how I'd put this to work to try…

Read more »

Mature couple at the beach
Investing Articles

If I were retiring tomorrow, here are 2 stocks I’d add to an ISA

This Fool is investing in his ISA now for retirement. But if he stopped working tomorrow, here are two FTSE…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

How I’d try and turn a small SIPP into a £500k pension pot

By consistently topping up a SIPP with a sound investment strategy, it’s possible to transform a small pension pot into…

Read more »

Investing Articles

£20,000 in savings? Here’s how I’d use it to target a £1,706 monthly second income

A diversified portfolio of growth and dividend shares could make me a big passive income in retirement. These are the…

Read more »

Investing Articles

£17,800 in savings? I’d buy UK shares to try and retire early

Can our writer retire early, even if just by a year or two, thanks to putting some money into UK…

Read more »

Older couple walking in park
Investing Articles

Turning a £10k ISA into a stunning £67,768 a year second income

Investing just in FTSE 100 and FTSE 250 shares can be a great way to build a substantial second income.…

Read more »

Road trip. Father and son travelling together by car
Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider for generational wealth

Buying FTSE 100 and FTSE 250 stocks can be the key to unlocking long-term wealth. Here are two companies that…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

£20k to invest? 3 steps that could unlock a £36,941 passive income

Successful investing often comes down to following a handful of core principles. Here are a few I think could help…

Read more »