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Buying Dividend Stocks for “Free”

Evan Cooper Sep 21, 2016

The investment tactic I’m about to share could probably be dismissed as a mere mind game.

If so, I plead guilty – but since behavioral finance tricks can help steer us in the right investment direction, this trick serves a worthwhile purpose.

A Mental Trick

My mind game involves thinking about dividends as a way to get stocks for “free.” I use quotation marks because we all know that in the real world, nothing is free. Although, dividend stocks have the unique ability to make an investment appear to be free, and that’s what I’m getting at.

For illustrative purposes only – since this is not about recommending a particular stock or industry sector – I’m going to use Consolidated Edison (ED ), the New York-based electric and gas utility as an example.

A Utility Example

Shares of ConEd are currently trading at about $76.50. That’s down from the year’s high of $81.55 in July and much better than the low, which was $64.91 in early January, just before the stock’s ascent throughout the winter and early spring. From March to May the stock declined a bit, then rose into July. Since then, it has been on a gradual downward slope. For our purposes however, all of that is mostly irrelevant.

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