Investing can be broadly split into two categories – growth investing, and income investing.
Just ask a random group of investors and most will fit into either type, while some may claim to be a hybrid of both styles.
Growth investing emphasizes steady capital appreciation through the rise in the share prices of the underlying securities.
Income investing, on the other hand, focuses on receiving a stream of passive income through dividends.
Dividend-paying stocks have a reputation for being slow, boring businesses without much growth.
However, I believe dividend stocks should form a core part of any investor’s portfolio. Here’s why.
The ability to pay a dividend
Stocks with the ability to pay a dividend imply that they have financial strength.
Only profitable companies can pay dividends as these payments cannot be made if a business incurs losses.
These companies also need to have reasonably sturdy balance sheets and generate healthy free cash flows to afford dividend payments....