Dividend Stocks or Penny Stocks?

Dividend stocks or penny stocks? If you're interested in investing in the stock market, this question is crucial to ask.

Dividend stocks are generally more expensive, and from the word "dividend", you can infer that you'll be receiving dividends (passive income). Penny stocks on the other hand, are called "penny stocks" for a reason: they're cheaper.

Now, don't get me wrong; it's possible you'll receive dividends from penny stocks, just like it's possible to not get dividends at all from more expensive stocks. It's just generally not the case.

Let's take a look at what causes a stock's price to increase/decrease.

The most important thing to remember is supply and demand (for the corporation itself). How high is the demand, and how much supply is there to meet that demand? For example, if everyone wants to buy electronics from Corporation A, and Corporation A constantly needs to reorder supply (and do), you can expect that stock to rise rapidly. And, if there's a negative press release about Corporation A, their stock price decreases because the original demand is no longer there.

Also, when a stock itself is purchased rapidly, the price goes up for this reason too, regardless of the company's supply and demand. So, those two things alone right there - supply/demand and the rate of which the stock is bought/sold - will seriously affect the price of the stock, whether positively or negatively.

Alright, now should you be buying dividend stocks or penny stocks? What we need to look now is what you're buying stocks for in the first place.

Typically, you'd think that if you want to be a trader (buying stocks low and selling high either on a daily, weekly, or sometimes monthly basis), you'd want to buy penny stocks only. That's basically correct, because dividend stocks make no sense to use to flip if you can generate passive income.

Most of the time, the price of a stock doesn't increase that rapidly (in a day, I mean). And if it does increase rapidly, I highly doubt it'll increase higher than 100% in one day (it's generally less than 10% a day). Therefore, the more money you spend on stocks you're going to flip, the more money you'll make. For example, if you buy a stock that's $2.43 (penny stock), and it increases, a typical daily increase is like 3-5%. That means if you sell it that day, you'd make only $0.07-$0.12. Now, if you invest $1,458 into that stock, you'd be able to buy 600 of that same stock. And with a 3-5% increase that same day, you'd make $43.74-$72.9. Even with almost $1,500, you'd make less than $100. Of course, this is if you're day trading, and is only an example.

In a week, if that stock increased by 5% per day for five days, and you invested $1,458 for 600 stocks, you'd make $402.81 if you sold it at the end of the week.

Going back to the topic: penny stocks vs dividend stocks depends on your goals. Again, some penny stocks do pay dividends, but it makes sense to use them for flipping rather than holding. Same with expensive stocks: they don't all pay dividends, and stocks that are expensive and pay dividends make no sense to buy for flipping.

Therefore, I want you to think about what you want - passive income from dividends, risk and a various income amount from flipping, or perhaps both - and then decide.

To learn more about the stock market, you can CLICK HERE. I've personally never tried this program before, but I always say why not give it a shot?

- Ethan


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