People invest in all kinds of shares. They can be growth shares, dividend shares, value shares, penny shares… with lots of overlap.
At the end of the day, it’s our total returns that count, not how we get them.
But I’ve come to like dividend shares best, and I want to tell everyone why.
Lovely cash
Firstly, the cash itself is what it’s all about, isn’t it? I mean, we all want more of the stuff.
I often see folk point to share prices and charts, to show how much wealth they have. But we can’t spend shares or charts, we can only spend cash.
Now, I know most of us are in it for the long term and we invest the cash in more shares anyway. But for me, seeing actual cash come in from my shares helps to keep it real. Even if I invest it in new shares.
More choice
We might buy more shares with our cash, but we can keep it and spend it if we want to. Need a bit more for the hols this year? Done.
It’s easier to keep back some dividend cash rather than sell some shares. And if we hold shares that don’t pay out cash each year, we don’t have the option.
It also means that I can stick with the same shares when I retire and want to take income. I won’t need to make any changes to the shares I hold.
Sign of strength
Steady dividend cash can be a good sign of a company’s strength. I say can be, because there are times when it’s not.
I’ve seen firms paying what I think is too much cash, for years, while not earning enough to cover it. And the share price slides over the long term, as the cash pours out.
But, stable dividends, well covered by earnings, from a company in a cash cow business. Now that can be a real sign of strength.
Stable income
Retired and need the income? We can take it from dividends, but the cash can be erratic. How would we cope in a year like 2020 when many dividends were slashed to the bone on Covid fears?
Well, there are some investment trusts that focus on stable income in a way we just can’t get from most stocks.
Some of these Dividend Heroes, as they’re known, have raised their cash payments each year for more than 50 years in a row now.
Dividend plan
There’s one kind of dividend plan that I think I like best.
Profits can be up and down, and so dividends can rise and fall too. Some firms, like miners, can lurch from big yields to small ones, and that can make their share prices boom and bust.
I like to see a basic ordinary dividend yield, which firms see as sustainable. And then top that up with special dividends in good years.
That recognises the way profits vary, and I think it can help bring some stability to share prices.
