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Forget Bitcoin! Here’s why I’m using my cash to buy top dividend stocks

Lady wearing a head scarf looks over pages on company financials
Lady wearing a head scarf looks over pages on company financials

The Bitcoin price has hit fresh two-year lows this morning, with the cryptocurrency down 11.3% in the past 24 hours. I already own some Bitcoin, but with my spare cash I’m not going to buy more on this move. Rather, I’m targeting some dividend stocks to help my overall portfolio both now and for next year. Here’s why.

A diversified portfolio

There are so many different investment options for me to choose from. I’ll be honest, not all of my money is invested in stocks. Some is in property, some is in crypto. Yet this means that I’m relying more on my stocks to help balance out my overall portfolio so that I’m not overly exposed to one particular asset class.

Even within the stock market, I want to diversify myself. Growth stocks have underperformed this year. Slowing global economic growth has meant that revenue and profit expectations for some hot-shot businesses has been revised significantly lower. Even in the big tech space, recent weeks have seen a wave of redundancy announcements due to uncertainty.

Therefore, targeting dividend stocks allows me to have another option to try and generate profits. Dividend payers tend to be more mature companies where growth is now much steadier. As a result, profits are often paid out to investors rather than pumped back into the business.

Generating income during volatile times

Another reason why I’m focusing on dividend shares at the moment is to help earn passive income. Assets such as Bitcoin and gold don’t have a benchmark interest rate that I’ll get paid if I hold them. During volatile times, I’ll really benefit from income payments, especially if the share price is bouncing up and down.

For example, let’s say I buy a stock that has a dividend yield of 5%. In the next few months, the share price could fall by 10% or 20%. Yet if I can remain objective about the company and take a long-term view, I can sit back and keep holding the stock. After a few more months, I should receive the dividend payment. Years down the line, I could be in a position where I’ve generated sizeable income. At this point, we also could be in a stock market recovery/boom stage. This could allow me to make gains on the share price.

Risk and reward with dividend stocks

Despite the income potential and diversifying impact, I’m aware of some risks here. Firstly, if the global economy continues to struggle, companies might cut dividends in order to protect the balance sheet.

Second, some dividend stocks might be in sectors that are underperforming. For example, it could be a tough year for retailers here in the UK. So, I might be better off avoiding this area, even if it currently offers me an attractive dividend yield.

On balance, I’m going to allocate my free cash in coming weeks to top dividend stocks.

The content in this article is provided for information purposes only. It is not intended to be, neither does is constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

The post Forget Bitcoin! Here’s why I’m using my cash to buy top dividend stocks appeared first on The Motley Fool UK.

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Jon Smith has positions in Bitcoin. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2022