5 Benefits of Dividend Stocks for UAE Residents
One of the reasons Warren Buffett prefers stocks to gold is that the former provides you with income. You don’t have to sell your stock holdings to earn dividends.
If you are a UAE resident who needs a regular income stream from your investments, then you should consider buying the best dividend stocks in the UAE.
But a regular income stream is only one reason for being a dividend investor. In what follows, we consider five key benefits of dividend stocks for UAE investors.
Stability during economic cycles
Most dividend stocks that increase their dividend payout ratio consistently are often in non-cyclical industries. That is, they are in industries where demand for their products is relatively stable across all phases of the economic cycle (expansion, peak, contraction, and trough).
Such companies are less volatile during recessions and are often in a position to maintain their earnings growth even in difficult market conditions.
Having such companies in your portfolio can protect you during economic uncertainties.
Protection during market downturns
Since dividend stocks represent ownership in stable and well-established companies, they are often resilient during market downturns.
In other words, the volatility of dividend stocks is usually lower than that of non-dividend stocks. This is why even growth-oriented investors increase allocations to dividend stocks during market downturns.
Compounding growth through dividend reinvestment
Though many embrace dividend investing because they need the income to meet some needs or wants, others reinvest the dividend back into the market.
Dividend reinvesting means you are putting more money in the market, which increases your ability to benefit from compounding. With a high dividend yield, you can increase your portfolio value faster over the long term.
A strategy that focuses on companies that increase their dividend payments and reinvest those dividends for greater returns is called dividend-growth investing.
Potential for capital appreciation
During bull markets, growth stocks usually outperform dividend stocks. However, when market volatility increases or we enter into bear market territory, dividend stocks usually outperform growth stocks.
Also, though dividend stocks don’t usually have the same gross returns as growth stocks, many of them outperform based on risk-adjusted returns (returns after adjusting for standard deviation, a popular measure of risk), which is what ultimately matters.
Regular income stream
If income is your priority, then you will find dividend stocks advantageous. You can use dividends to meet your needs and wants. Some use dividends to pay their children’s school fees, rent, mortgage, utility bills, and plan for vacations, among others.
You may even grow your portfolio to the point where you can meet all your needs and wants based only on the income you get from your investments; in other words, you can achieve financial independence.
However, achieving this often requires earning income from other best investments in the UAE for expats, especially bonds and Real Estate Investment Trusts (REITs).
If you are in the UAE, you can purchase the most popular dividend stocks in the world through Sarwa. With Sarwa, you will enjoy cost-effective, convenient, and secure trading of multiple income-paying securities, including dividend stocks.
