It's All About the Dividends, Baby

IT’S ALL ABOUT THE DIVIDENDS, BABY!

B”H

Puff Daddy once asked:

“Now, what y’all wanna do?

Wanna be ballers, shot callers,...”

In order to achieve investment success today, it is wise for investors in the current inflationary environment to channel their inner Diddy in order to realize that it’s all about the dividends, baby. Okay, perhaps it’s not only about dividends, but they often can be an investor’s best friend.

To review briefly, dividends are the distributions of profits that a corporation gives to its eligible shareholders. Corporations will typically use the ex-dividend date to determine who is eligible for the dividend. As long as you own the stock by this date, you’ll receive a cash dividend based on the amount of shares that you own at the time. (While dividends can also be given in extra stock, most dividends these days are given in cash.)

There are two main types of dividends, which can often be confusing at first to many new investors. Dividends, which are either qualified or ordinary (also called nonqualified), are taxed differently based on how long you previously owned the stock.

In the United States, if you own a dividend paying stock for more than 60 days, those dividends would be considered qualified dividends. Those qualified dividends are taxed maximally at 20%, and minimally at 0%. However, ordinary dividends are taxed at your federal income tax rate, which varies between 10% and 37%. Therefore, there is a clear advantage to receiving qualified dividends instead of ordinary dividends.

Getting back to the investment strategy of P-Diddy, we can see why the Benjamins, in the form of dividends, are so crucial. When inflation rates rise, as they are doing now across the globe, they strip away the purchasing power of consumers. Therefore, having assets such as dividend paying stocks can provide a great hedge against inflation.

According to Morgan Stanley, dividend paying stocks are better investment options even without record inflation rates. Their findings indicate that in the long-term dividend stocks consistently outperform non dividend stocks, and with less year to year volatility.

Whether you’re curious to learn more about dividends, or want to channel your inner Sean John and hold figures, we’ve created a complimentary dividend guide for you that includes ten of our favorite dividend stocks. Check it out and start down the path of getting more Benjamins, aka dividends, today!

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*Above image courtesy of Investopedia.