“Is it really profitable if I don’t sell, and just hold onto a stock for decades?”
Many investors ask this question, even when the stock they are holding continues to pay dividends regularly.
However, some of the most successful investors build wealth not by frequent trading but by owning cash-generating businesses.
Let us look at why holding a stock for its dividend is not only okay but is a good long-term investment strategy.
Why This Question Comes Up So Often
Investors tend to place a heavier focus on visible capital gains than on the quieter mechanics in long-term wealth creation.
They question whether it is really a profit if they don’t sell the stock as share price movements are immediately observable, but dividends compound gradually and attract less attention.
Market commentary typically highlights highs and corrections rather than cumulative income an investor makes over time.
This imbalance results in profits being equated with gains from selling.
The ongoing value generated by owning productive businesses attracts less attention.
Many investors also struggle to distinguish between paper gains and actual cash returns.
As prices fluctuate daily, unrealised gains can feel uncertain.
In reality, investors who hold onto quality companies benefit from compounded earnings and dividend income, forming substantial long-term investment returns.
Dividends Are Real Returns, Not Secondary Returns
Dividends put cash directly into your pockets without any selling.
They are real returns given without any additional actions from you.
Singapore Exchange Limited (SGX: S68) or NetLink NBN Trust (SGX: CJLU) serve as prime examples of dividend reliability, having sustained regular payouts throughout their entire distribution histories..
Over time, dividends will form a large portion of your total returns.
When Holding Forever Makes Sense
Holding indefinitely makes sense if the underlying business is genuinely high quality.
Such companies usually possess fundamental competitive advantages and consistently generate profitable cash flows regardless of the economic environment.
If cash generation is accompanied by a strong balance sheet, characterised by low debt and high liquidity, the business can weather a downturn without diluting shareholder value.
Long-term holding is further justified when dividends are both sustainable and growing.
Payouts funded by free cash flow, not debt, are a signal of competent management.
Even modest dividend growth can compound significantly over a span of decades, and more so with reinvestment.
Holding forever requires investors to view investing as ownership of the business, rather than a short-term participation in market movements.
You are no longer “renting” a stock to sell it higher later, but partnering with a company to share in its long-term success.
The Power of Dividend Compounding Over Time
Dividend compounding works by reinvesting payouts to increase the number of shares you own, raising future income.
Even when the share prices stagnate, a consistently paying dividend stock can still provide significant long-term returns through compounding.
Over the long run, many income investors see rising annual income, which reduces dependence on selling shares to realise gains.
This often leads to lower emotional stress, as day-to-day price volatility matters less.
With income growing steadily, the focus shifts from short-term price movements to long-term ownership.
What “Forever” Really Means (And What It Doesn’t)
Holding forever is a default position, not a blind rule.
It does not mean ignoring fundamentals.
It means holding through market cycles and reviewing business quality periodically to make sure fundamentals are still strong and sound.
If business quality deteriorates or competitive advantages weaken, selling may be the right decision.
Holding forever means staying invested unless there are business fundamental issues not to.
Common Objections — And Why They Miss the Point
Here are some common objections to holding a stock forever, and why they don’t stand:
- What if the price crashes?
Even when prices fall, income may remain intact.
The dip could be a small market correction.
- What if I miss capital gains?
Dividends reduce reliance on “perfect” timing to exit the market, allowing compounding to work its magic.
- Isn’t it risky to never sell?
Risk typically comes from frequent trading, not staying invested.
When You Should Consider Selling Anyway
Selling is part of investing.
If business fundamentals permanently deteriorate and the balance sheet weakens significantly, selling would be a rational decision.
When dividends are cut or become unsustainable, exiting may be a good strategy.
Alternatively, when you discover opportunities that can deliver better long-term income elsewhere, selling can free up capital for you to reallocate resources and adjust your portfolio.
Get Smart: Dividends Build A Reliable, Long-Term Stream Of Income
Holding a stock forever for its dividends is not being passive.
It is intentional ownership that builds a steady, sustainable stream of long-term income.
For long-term investors, holding onto quality dividend stocks can be one of the most powerful decisions in their investment strategy.
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Disclosure: Wenting does not own any of the stocks mentioned.
