The Importance of Dividends in Building a Portfolio

Not all the stocks that I own have a dividend. Some investors only invest into companies that have a dividend, but there are a lot of companies that I would rather reinvest their profits into growing their business instead of giving that profit to the shareholders. I want my ownership position to increase in value. That is what matters to me most as an investor. A lot of my stocks do pay a dividend though. I almost never invest into a company for a dividend. I like to invest into businesses that are growing quickly at fair valuations. A lot of the stocks I buy that fit that criteria, however, do offer a dividend.

A lot of investors like dividends as a way to increase their income. I know a lot of investors who are trying to use dividends to retire. I like to look at dividends as a way to increase my ownership percentages in companies. For example, I very recently started a position in Ally Financials. They pay a dividend yield of 3.69%. Once I am paid that dividend, I can look at Ally's valuation at that time and if it's reasonable, I can buy more shares with the money that they paid me. I like to look at dividends as almost "free money" that I can use to buy more shares with.

I like to collect all my dividends and use them to buy more shares in the companies that I own, but I also like to use them to start positions in other companies also. Using the profits from the companies I own stakes in to buy stakes in other companies. I'm not trying to use dividends to boost my income; I am using dividends to boost my portfolio. 

I'm always trying to find more companies to invest in that fit my standard for investing. When I do, I'll buy the stock and wait for my shares to grow. I'll buy more of it with my money and any dividend that I might get, and I will keep doing that until the stock gets to a valuation I don't think is fair.

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