- Dividends are payments a company makes to return value to its shareholders
- Dividends are more likely to be paid by well-established companies
Dividend stocks are publicly listed companies that pay out regular dividends.
Dividends are payments a company makes to return value to its shareholders. A dividend is paid per share and typically made on several occasions over a fiscal year. So, if you own 10 shares in Apple Inc and they pay a $1.00 dividend twice per year, you will receive $20 annually.
Dividends are more likely to be paid by well-established companies, rather than those that are still growing. As such, technology and other high-growth companies rarely pay dividends because they need to reinvest their profits into fueling its growth.
Dividend payments indicate a company’s financial well-being, and the share price can rise and fall depending on whether a dividend increases or decreases.
Companies can pay several different types of dividends:
- Cash dividends.
- Cash Dividends are the most common type of dividend. Companies pay these in cash directly to shareholders.
- Stock dividends.
- In leu of paying cash, a company may opt to pay investors with additional shares of stock.
- Dividend reinvestment programs (DRIPs).
- Investors in Dividend reinvestment programs reinvest any cash dividends back into the company’s stock immediately, often at a discounted price.
- Special dividends.
- These dividends are typically additional to the regular dividends that a company pays out. A company often issues a special dividend when they accumulate cash they do not need or when they generate windfall profits.
- Preferred dividends.
- Preferred dividends are issued to owners of preferred stock. Preferred stock is a type of stock that functions like a stock and a bond. Dividends are usually paid quarterly, but unlike dividends on common stock, dividends on preferred stock can be fixed and will take preference over dividend payments to common stockholders.
