Watch your Dividend Stocks Carefully
Filed in archive by on February 09, 2006

As with all investments, the closer you get to retirement, the less risk we should be willing to take.
Concerning dividends and relying upon them to be a large portion of your portfolio growth or retirement source of income, consider the recent tale of GM and what they did with there dividend.
On Tuesday of this week, they cut the dividend in half from $2 to $1. Just in this one case you can see that those that may have been counting upon this as a large source of predictable income, this is not good news.
GM is just a good lesson that while dividends will remain, overall a good strategy for your investments, they still involve a measure of risk.
Keep in mind that whenever you see figures referring to long-term stock-market returns, it figures that you are reinvesting all of the dividends. If you don't those figures drop accordingly.
Dividends are still a good investment considering that the most that they can be taxed at now is 15%.
One of the great benefits of dividends to investors is that it does give them control over how to reinvest them; no-one else can make that decision.
The big thing to keep in mind when you come across companies that pay out big dividends is that their strategy can backfire; once a dividend is put in place most companies are extremely reluctant to cut it. So in many cases historically, companies have held the dividend while the stock price gets decimated.
The whole point is that just because a company has paid out great dividends throughout the years, doesn't mean that you don't periodically check out its financials.
If you're counting as dividends to be one of the major components of your growth and retirement strategy, watch over them carefully like you would any other investment and adjust your portfolio as needed.
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