When you are choosing strategies to invest in one of the more popular investing methods in vogue today is that of dividend investing. Dividend investors invest in stocks that pay dividends on a regular basis though some investors only choose stocks that increase their dividend on an annual basis. This strategy is known as a dividend growth investing strategy and is often considered to be a sound long-term strategy for investors.
When choosing stocks with a dividend strategy there are certain industry groups that many investors will dedicate most of their money investing in. This article will provide some suggestions of industries that you can invest a significant amount of money in while maintaining an dividend investing strategy.
Utility stocks are a common example of a dividend paying stock and is a good component of any dividend investing account. Utilities provide stable dividends in a regulated and predictable industry that is a solid base for a dividend based portfolio. However, utility companies often don’t offer much in the way of dividend growth as revenue increases are often tied to rate increases which have to be approved by government authorities.
Real estate investment trusts (REITS) are often good choices for investors who are looking to build a portfolio of dividend paying stocks. While REITs are stable dividend payers, unlike utilities REITs will provide some inflation as well as rents are often increased in accordance with rising incomes. There are many types of REITs out there which rent commercial, residential, and industrial properties, and specialized REITs that concentrate on healthcare, timber land, and even oil fields. One disadvantage of REITs are that they are taxed at ordinary income rates and not lower rates paid by many dividend paying stocks.
Another option for dividend investors are master limited partners (MLPs) that often own energy infrastructure assets such as oil and gas pipelines. While there are some tax advantages to these investments, the presence of a K-1 form adds to the complication of investing in these companies which turns off some investors. MLPs offer reliable cash flows and present investors with the potential for rising dividends as pipelines expand and revenues increase.
Large pharmaceuticals offer significant dividends in many cases and their cash flows are often significant and growing. There are added risks to investing in pharma based companies including loss of patents and other related risks, but these risks are often offset by the potential for increasing dividends as the company brings new drugs on the market.