made in heaven

Dividend investing can be a great way to create some passive cash flow, yet it does have its drawbacks as well. There are some advantages and disadvantages of using it.

The nice thing about getting into income producing stocks is that you can get a monthly income without having to attempt to find stocks that will appreciate. Because you are getting a consistant cash flow off the stock it only has to not go down to be a good investment.

It is also a easier to manage a dividend portfolio because you do not have to consistantly monitor your posisitions you only have to get a List of high dividend paying stocks and invest in the securities that have a great dividend and are stable.

The major disadvantage to this strategy is that it tends to narrow your view. If you are only looking for stocks which produce a high dividend you may not be getting into the best investments. Sometimes companies give their investors a nice dividend to hide the fact that the company might not be the best thing to invest into.

One way to get around this is by combining dividend investing with value investing which uses factors such as the debt to equity ratio and the PE ratio in order to find the investments which are actually likely to head up. This way you can create your own guidelines which will help you determine when a stock is a good pick and when it is simply a terrible investment.

Another problem with simply investing for dividends is that you can forget about other ways of making money from the stock. Selling covered calls can be extremely profitable.

This is why I like to get into stocks which have dividends, high option premiums and they are not simply going to go under anytime soon. That way I can win in all 3 ways.

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