Stocks That Have Dividends Pay You
Company earnings going straight to your pocket. Let me explain...
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What Is This Dividend Thing?
You probably read the title of the article and thought, “you know what, it is about time some of my favorite companies started paying me.” When it comes to dividends, they kind of do! Let’s break it down.
Overview
Welcome to The In-Between, your guide to the world of investing. Today, we are going to take a deep dive into dividend stocks and how they are a powerful tool for investors.
Dividend stocks are a type of investment that pays out a portion of the company's earnings to shareholders in the form of dividends.
These dividends can be in the form of cash payments or additional shares of stock. Dividend payments are typically made on a quarterly basis, but some companies may pay them out on a semi-annual or annual basis.
What Makes This Appealing?
One of the biggest appeals of dividend stocks is that they provide a steady stream of income to investors, even if the stock price does not appreciate.
For example, if you own 100 shares of a company that pays out a $1 per share dividend, you will receive $100 in dividends each quarter. This can be particularly useful for retirees or other investors who are looking for a reliable source of income.
Below is a great graphic for the visual learners out there:
Source: https://mint.intuit.com/blog/investments/what-are-dividends-5225/
Other Benefits
Another benefit of dividend stocks is they can provide a degree of stability to your portfolio. Because the dividends are coming from the company's earnings, rather than the fluctuating stock price, they can help to reduce volatility in your portfolio.
It is important to note that not all companies pay dividends. In fact, many growth companies choose to reinvest their earnings back into the business rather than paying them out to shareholders.
These types of companies are often focused on expanding their operations, developing new products and services, or acquiring other businesses, rather than paying dividends.
Examine the Dividend Yield
When evaluating a potential dividend stock, it is important to look at the company's dividend yield. This is the annual dividend payment divided by the stock price.
For example, if a stock is trading at $100 per share and the annual dividend is $3 per share, the yield would be 3%. A higher yield generally indicates a more attractive investment, but it is also important to consider the company's underlying financial health and ability to continue paying dividends in the future.
Also Examine the Payout Ratio
Another important metric to consider is the company's payout ratio. This is the percentage of earnings that the company is paying out in dividends.
A high payout ratio can indicate that the company is using a significant portion of its earnings to pay dividends, leaving less for reinvestment in the business. This could make the company more vulnerable to economic downturns or changes in the industry.
A lower payout ratio may indicate that the company has more flexibility to continue paying dividends in the future.
Do Research & Talk to Professionals
There is no doubt that dividend stocks can be a valuable addition to any investment portfolio, but they are not without risks. Before investing in any stock, it is important to do your own research and to consult with a financial advisor. This article is not financial advice.
In conclusion, dividend stocks can be a great investment option for those looking for a steady income or to balance their portfolio with less volatile assets.
They should be evaluated carefully and as part of a long-term strategy, considering factors such as the company's financial health, payout ratio and dividend yield.
Cheers!
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