A dividend is a small monthly payment that is made to shareholders every month or quarter based on the company’s earnings. Holding a stock that pays out a dividend is a great way of building your wealth and getting some passive cash flow while you are at it.
But, why would a company pay you a dividend? After all it seems like a raw deal for them, we pay them once and they pay us for the rest of our lives.
Well there are actually a few different reasons why companies pay out dividends. First of all it just makes sense. When you buy a stock you are actually buying a portion of the company. If you own a share of the company, no matter how small that share may be, you still deserve to collect some of the profits that the company turns up.
It wouldn’t make sense if you invested into a business and did not benefit when it made money. So you should benefit if you invest into the company’s stock and they made money.
Another reasons companies issue stock is simply to keep investors interested in the stock. Investors like getting paid to own a security. Honestly who can blame them? If it is free money why not take advantage of it?
Companies know this and many will raise their dividends in order to create more demand for the stock and hopefully that added demand will be enough to push the stock up higher and make the company and the shareholders extra money.
Many companies will raise their dividends even when times are hard simply to get more investors coming in and hopefully bailing them out. Watch out for this and make sure you look for more when investing your stocks.
So, now that you know a little bit about it, is it worth investing into dividend stocks? Well of course, but make sure that it is not your only reason for investing into it. It makes a nice bonus, but is not the only thing to look for.
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Topics: Stocks Mutual Funds | Comments Off
MLA Style Citation:
Rosenberg, Shaun "What Is A Dividend?." What Is A Dividend?. 22 Jun. 2010. uberarticles.com. 18 Sep 2014 <http://uberarticles.com/finance/stocks-mutual-funds/what-is-a-dividend/>.
APA Style Citation:
Rosenberg, S (2010, June 22). What Is A Dividend?. Retrieved September 18, 2014, from http://uberarticles.com/finance/stocks-mutual-funds/what-is-a-dividend/
Chicago Style Citation:
Rosenberg, Shaun "What Is A Dividend?" uberarticles.com. http://uberarticles.com/finance/stocks-mutual-funds/what-is-a-dividend/
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