Winning the lottery jackpot are would be the quickest way to become wealthy, but how likely is that? You could spend more trying to win it than the actual jackpot amount. I think the answer is investing in dividend shares.
Solid returns
Dividend shares have already proven to be solid long-term performers. If a business is paying a dividend it means it's generating profit. Higher profits will turn into bigger dividends and hopefully solid share price growth too.
A good portion of the total returns from the share market is the dividends. I think that makes sense – if a business pays half of its profit out each year then half of the return comes back to you in cash and the other half is being re-invested.
However, a share isn't a great investment just because it pays a dividend. You need to find those opportunities where the dividend is just part of the returns. Just look at what's happened to Telstra Corporation Ltd (ASX: TLS) – its share price has and dividend have almost halved over the past few years.
Dividend shares offer much higher yields than defensive assets
We used to be able to receive a solid, risk-free return from defensive assets like cash and government bonds. It's just not the case any more. A yield of less than 2% isn't keeping up with inflation.
What about property? Well, the yield on property has been pushed really low, so much so that most investors are making a cash rental loss every year with their properties. Most people know it as 'negative gearing'.
The ASX 200 (ASX: XJO) as a whole has a dividend yield of around 4%, plus the franking credits. There are plenty of dividend shares on the ASX that offer a better yield than that.
Long-term strength
Lots of people think shares are risky. Share prices do go up and down, that's what gives us the opportunity to buy at cheap prices sometimes. The share market recovers from bad events every single time. World wars, the GFC, trade wars, different leaders – shares keep reaching new highs over the long-term.
Compared to cash in the bank I think dividend shares are a clear long-term winner. You just need to regularly invest in the right shares.
