| What Are Dividends? |
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| Written by Shaun Rosenberg |
| Monday, 21 June 2010 18:50 |
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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.
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 exactly would a company want to start paying out a dividend? It seems like they are getting the short end of the stick. Would you want to pay someone money every month or quarter. 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 doesn't make sense to invest into a company without having any sort of benefits that come from it. Dividends are one of those benefits of owning a stock. A second reason companies pay out a dividend is to keep interest in their stock. Investors like to get paid just for owning a security. Why wouldn't they it is free money after all? So by offering a dividend companies can actually attract more investors. Companies realise this and raise their dividends in order to raise the demand of the stock. Higher demand means that the stock will likely increase or at least stay the same considering that supply and demand are really what drives the price of a stock. 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. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. stock market tutorial Check here for free reprint licence: {title}. |