As an investor, you may already have thought about investing in dividend-paying stocks. While there are far better ways in which you can invest, a focus on dividend stock investment may in the end work against you.One of the reasons as to why putting all your focus on investing in dividend stocks is an investing error is the uncompensated risk that it comes with. This is because any investor who decides to go with this type of stocks will have to choose their own investment. Therefore, you may not get compensation if the risk is diversified away in terms of broadly diversified or low cost index fund.
Secondly, most dividend focused investors put their focus on the income or yield of the investment thus forgetting about the total return. In most instances, the income will be quite similar to the capital hence leaving you in the same situation you were in. You will, therefore, be left counting your losses instead of the expected profits from an investment. For this reason, it would be better to consider another type of Investment if you are to benefit.
Last but not least, dividend Stocks are tax inefficient. Despite the fact that qualified dividends are taxed at a lower rate, distributing them in not necessarily favorable for investors. If none of the dividends is distributed, an investor will have to make do with paying the tax based on their share from a company’s earnings.
They are so many other reasons as to why you should consider putting all your focus on dividend stocks. However, you should make sure that you seek help from other investors before making an investment decision. It is only then that you will be able to get the most out of your investments without having to worry about incurring any losses.