Commodity Stocks with Dividends

Investing in dividend stocks can be a good way to create a residual payment for yourself over the long-term. One type of stock that could offer a dividend is a commodity stock. Here are the basics of and benefits to investing in commodity stocks with dividends.

Importance of Dividends

An investor's main objective is, of course, to bring in a return from the market. This can be done through capital appreciation or through dividends. Capital appreciation depends on many factors, and many of them are beyond control. For example, the share price could go up or down depending on consumer confidence. This is something that can change from day to day. With dividends, you can receive a regular payment from the company regardless of what the stock price is trading at. This provides you a level of security in your investment and helps you receive a regular source of return.

Commodity Stocks

There are a number of different commodity stocks to invest in today. Because commodity stocks are backed by resources that everyone needs continuously, investing in them can provide you with a level of safety. For example, some commodity stocks are issued by steel companies. While the prices of steel can fluctuate greatly, there is no real risk of its becoming obsolete. This means that there is always some value in the stock.

Many commodity stocks issue dividends to their shareholders. This can provide a level of safety for investors, as they receive a regular income payment from a stock that is considered very safe over the long-term. Many commodity investors invest in these types of stocks simply for the dividend payments. They know that the prices of the stocks will fluctuate; however, that does not really matter to them. This can be a solid investment strategy, as it does not necessarily depend on the daily price of the commodities to be successful.

Reinvesting Dividends

When investing in commodity stocks, you may want to consider reinvesting your dividends. Whenever a company pays you a dividend, consider purchasing more stock with those dividends. Your dividend payment is calculated based upon how many shares you have. Therefore, if you use the dividend to buy more shares, your dividend payment will be larger next time. Then when you receive that dividend payment, you can purchase even more shares, and so on. Many investors find that this helps to grow their portfolios rapidly.

Tax Considerations

When you invest in commodity stocks that pay dividends, you will need to be aware of the tax implications. When you receive a dividend, you will have to pay taxes on it at your regular marginal tax rate. This is true whether you reinvest the funds immediately or keep the money. Therefore, if you use the strategy of reinvesting your dividends, you will have to come up with money from some other source to pay for the taxes on the dividends.

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