Build Wealth

Investing for dividends or investing in strong undervalued companies? Which one of these two methods is better? They are both extremely popular. 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 is the most profitable? Both of these strategies have one weakness and one big strength.

Value investing tries to take advantage of strong companies that are currently undervalued by the market. When you look at the long term results of this strategy it really does work. Great companies with good fundamentals will almost always beat the yearly average stock market return over the long term.

That means looking at things such as the PE ratio and the price to book ratio are very important ways of measuring how well a company will do in the long term.

There is one thing that value investing lacks however. 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 best reason of getting into great dividend paying stocks is that you can start to see money as soon as you buy it, without waiting such a long time. Because of the dividends they produce some stock can be very profitable even if they do not appreciate.

But there is one bad part about dividend investing, it can take a lot of money to be really profitable with it.

That is why the best long term strategy is probably not to simply buy a value stock or a dividend stock, but to combine the two. As a stock appreciates over time so does the dividend which means the income it produces also increases. In short each of these strategies is comes up short where the other is profitable.

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.