Dividends are payments made to shareholders by a company, which can be a positive or negative factor for investors. Companies that offer dividends are often stable, but may have slower growth. Dividend payments are usually made quarterly and can be reinvested to increase the value of shares. Research and planning are important for successful investing.
A dividend is money paid directly to an investor in shares of a company. Some public companies offer one with their shares, while others do not. The choice to buy and own a stock that pays a dividend is up to the individual investor, as there are positives and negatives to consider. A company that offers one with its stock is often a larger, more stable business in a field with little growth or slow and steady growth potential.
When a company offers a dividend to its shareholders, it takes money that could be reinvested in the company and distributes it to shareholders as a benefit from investing in the company. Receiving one is good for investors as they get a guaranteed return on their investment in the form of money. A stock that returns a dividend is good as an income investment or a long-term growth investment. This is because these stocks tend to remain stable and offer a tangible monetary benefit to investors.
Some investors avoid stocks that offer a dividend for this very reason. A company that gives one to its investors is not using that money to expand the business. Therefore, stocks may be less likely to grow in value, or may grow at a slower rate compared to a company that doesn’t offer one, but instead uses its profits to expand or pursue new business opportunities. Investors looking for short-term investments or rapid growth tend to look for stocks that do not offer dividends.
The dividend that a company offers to its shareholders is usually paid every quarter. The amount is set at a certain dollar value for each share you own. If you own 100 shares of a stock that pays $1 US dollar (USD) per share each year in dividends, you will receive $25 USD every three months. These quarterly payments bring the annual amount to $100 USD. Most companies that pay dividends also have a reinvestment program.
With a dividend reinvestment program, instead of taking dividends as payment, the investor can choose to reinvest each dividend and take the value in shares instead of cash. In this case, the value of the investor’s shares would increase by $25 in the first quarter. Because the value of the shares is now higher than before, the dividend for the next quarter would actually be more than $25 USD, based on how many additional shares the first quantity was able to buy. By reinvesting, an investor can easily increase his stock of shares.
With any investment, research, planning, a keen eye for the market, and a bit of luck, it goes a long way. Depending on your investment needs, a stock that offers a dividend can be a profitable investment over the long term.
Smart Asset.
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