What Dividends Can (And Can’t) Do for Your Retirement

What Dividends Can (And Can’t) Do for Your Retirement Bulman Wealth

One investment strategy that can be useful when it comes to setting yourself up for retirement is dividends. Dividends are regular payouts to shareholders based on the profits of the company. If you own some stock in a company, it’s possible that you will get regular dividends.[1]

Dividends are traditionally distributed quarterly, and they scale with how much stock you have in a company. So, for example, if a company paid out $1 per share to their investors as a dividend and you owned 5 shares, you would receive $5 as a dividend.[2]

Advantages of Dividends

Dividends can be a good way to create a steady income to hedge against inflation and poor investment performance in a retirement plan.[3] If the companies you invest in offer dividends and the market starts to turn down, you can still count on dividends to provide income. Dividends may also help to offset losses by providing income even in quarters where a company lost value.

Dividend stocks can also be useful to offset more volatile equity stocks.[4] If you have stocks that represent a risk and may fluctuate in value significantly, dividends can help to mitigate some of that risk by providing consistent payouts.

Disadvantages of Dividends

Not all companies offer dividend payments, so if you are thinking about using dividends as a way to set up income during your retirement, you need to make sure that the companies you are investing in for your retirement portfolio will actually be paying out dividends.

It is also possible that a company will decide not to pay out dividends, even though it has done so in the past. So while a company that has historically paid dividends may continue to do so, there is always a risk that they suspend, reduce, or cancel their regular dividend payments.[5]

Additionally, dividend values vary from company to company, and if a company is doing poorly, its dividend values may not offset losses from owning its stocks.

Lastly, dividends are often taxed at a much higher rate than capital gains.[6] Generally, when you sell a share of a company, any money you make from that sale is taxed as a “capital gain.” Dividends are taxed as income as if you made the money from a job, and that rate is much higher than the rate for capital gains.

The Takeaway

If you’re not sure if you should add dividends to your financial plan, Click HERE to sign up with Bulman Wealth Group for a complimentary assessment of your retirement strategies.


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Opinions expressed herein are solely those of Chris Bulman Inc. dba Bulman Wealth Group and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Investment advisory services are offered through Chris Bulman Inc dba Bulman Wealth Group, an SEC Registered Investment Advisor. Insurance products and services are offered through Chris Bulman, Inc. dba BWG Insurance Agency and Ameritas Life Insurance Corp., CA State Insurance License # 0M46922. Being registered as an investment advisor does not imply a certain level of skill or training.

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