Two methods of making money off of stocks are value investing and dividend investing. One of these methods tries to find strong companies that are undervalued. The other method attempts to get into stocks that are paying out a monthly income to their stock holders.
Which one of these two is the most profitable? Well each strategy has one big weakness and one big strength.
Investing for value is theory that undervalued companies who are fundamentally strong should do well in the long term. The long term results of value investing are undeniable. Companies that have excellent fundamentals will ususally beat average stock market return over the long term.
So checking things such as the PE ratio and the book value help an investor to determine how strong the overall company really is.
However there is one big disadvantage to value investing. Investing in strong companies is a long term approach. It is not something that you are going to see the results of in the next few months.
The real benefit of buying high dividend paying stocks is that you are able to see some profits once you get into the stock, without waiting many years. Because stocks will pay a consistent dividend buying good quality dividend stocks helps to produce an income whether or not the stock goes up.
However dividend investing has one big pitfall of its own, it takes a lot of money to make money.
Combining these two strategies is probably a much better option then just doing one. As the stock grows over time so does the dividend and therefore the cash flow can continue to grow.
It can take some time to get a plan like this to work. But it can be a very powerful long term way of saving.
