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Understanding Stock Dividend Basics

Dividend stocks

As companies offer rewards to their, they also may choose to reward their shareholders through stock or cash dividends.  These payments act as an incentive for people to buy and hold stock in the company offering it.  Dividend payments serve as a way for investors to get in on the company’s profits and go along for the ride.

Dividend payments are typically offered by well-established and stable companies who have grown steadily over time.  This includes a lot of large companies in the Energy sector, as well as players from other industries such as Coca-Cola Co.

Companies pay dividends to shareholders per their discretion either on a quarterly, semi-annual, or annual basis.  Dividend payments can come in the form of either cash payments or issuance of shares.  These payments are designed to attract investors to the company’s stock and retain them more effectively.

Stocks that pay out dividends are useful financial instruments to include in your portfolio for long-term lower-risk investments due to the almost-guaranteed payment from dividends.  For example, if you put $10,000 into a stock paying a 3.4% yield, annual dividend payments alone would bring you $340.  In addition, in a stable economy, dividend yields tend to rise, so payments have the opportunity to become greater over time.

With the additional capital earned from dividend payments, investors are able to reinvest this money into the company or other financial instruments.  This effectively allows you to further diversify your portfolio, or to pump it back into your current position.

Check out some dividend stocks we recently profiled here.



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