There are two main approaches of dividend investing. The first approach is by investing in high-yielding dividend equities only after doing stock analysis to determine their future growth. An investor is essentially investing in a company whose dividend yields are above average. This yield has been averaging around 4% in recent times, although this has mostly been dependent on the market. It is important to understand that the main focus of high-yielding dividend equity is in the potential income of the dividend. But at the same time, a higher yield does not always translate to increased or higher returns.
The second approach of dividend investing is through investing in growth-oriented dividend equity. This dividend investing approach allows an investor to invest in a company that has a track record of increasing its dividends. A company with a track record of more than 25 years is usually preferred in this approach. But even though the company has a great record of increasing its dividends for the last 25 years, it is still possible that the company may not have a higher dividend yield compared to its competitors. In fact, dividend growth equity tends to yield less compared to other market equities.
Investors who use this second approach of investing in dividend stocks believe that history of continuous payment is a crucial factor in determining the quality of a company. A company with such a history has a trait of being mature in the market with better experience, long-lasting products or services and healthy balance sheets. Regardless of which approach an investor chooses, investing in dividend-paying stocks can be healthy in the long run. This is because the dividend will act as another source of income for the investor. This can be essential in helping the investor build more wealth. The dividend income is also more reliable compared to employment income or any other investment income.