Dividends have become QUITE the talking point here on "Money Twitter".

"Dividends aren& #39;t for young people"

"Get money, buy income"

So many opinions..... so which is it?

Let& #39;s walk together.

"Dividends"

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1.

First, what are dividends?

Dividends are cash payments that a corporation awards its shareholders, as sort of a "thank you" for investing in them.

Dividends are paid out of the company& #39;s free cash flow (it& #39;s net cash from operations minus its capital expenditures).

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2.

Dividends are paid (usually) every 3 months. But the payout can also happen once, twice per year, or even monthly.

A dividend stock& #39;s "yield" is the percentage of the share price the dividend is paying you each year (dividend amount / share price).

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3.

So if you buy a stock with a share price of $100, and it pays you $5.00 per share in dividends every year,

The yield would be $5.00 / $100 = .05 (5%)

Dividends are so highly debated because they give you so much FLEXIBILITY.

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4.

You can basically do one of three things with dividends:

-You can spend them as cash.

-You can reinvest them back into the company for more shares (more dividends)

-You can reinvest them into OTHER companies to build new positions without selling your existing shares.

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5.

So let& #39;s circle back and address the 2 phrases that I have seen on Twitter in recent weeks.

First: "Dividends aren& #39;t for young investors"

This is a woefully bad take.

Why?

Because dividend growth stocks do the most work the longer you hold them.

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6.

In other words, your EARLY years are the BEST times to buy strong dividend payers - and hold them for a LONG time.

Dividend investing is a strategy that requires vision, and patience.

You won& #39;t get rich overnight, but you can get filthy rich over the course of decades.

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7.

Now, let& #39;s look at: "Get Money, Buy Income"

In this mindset, your income is producing wealth - the role of dividends is to sustain that wealth.

Dividends serve this purpose beautifully because it& #39;s very easy to find secure, stable companies to invest in.

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8.

In this low rate environment (bonds and bank accounts pay squat)

A company such as AT&T ($T) is a fine investment if your GOAL is to simply maintain what you already have with a nice income stream

AT&T won& #39;t make you rich, but they won& #39;t bankrupt you - that& #39;s the point

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9.

So what am I getting at?

Dividends are NOT all the same - but that& #39;s the cool part.

You can invest in different types of dividend paying stocks to suite your needs.

Want to build wealth? Go for dividend growth.

Want to sustain wealth? Find a stable, high yield stock.

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10.

Questions? Shoot them over to me with the button below!

Otherwise, follow along until next time @theefinanceguy

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