A dividend is a small payment that stocks pay their shareholders every month or quarter based on their earnings. Holding stocks that pay out a dividend is a terrific way of building up your wealth and creating some passive income at the same time.
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.
There are a couple reasons why they do make these payments and they do make sense. The first reason that a company will pay dividends to their shareholders is simply because they are sharing their profits with the stock holders. If you own a portion of the company no matter how small you should benefit as that company makes money, shouldn't you.
It does not make a lot of sense to invest into a company unless you are going to be rewarded for it. And one way of rewarding them is by sharing income with them.
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.
Most companies will actually raise their dividends even when the company is not making any money with the hope that the demand will come and save the company. Watch out for this, you don't want to buy a company just because of the dividends.
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.
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.
There are a couple reasons why they do make these payments and they do make sense. The first reason that a company will pay dividends to their shareholders is simply because they are sharing their profits with the stock holders. If you own a portion of the company no matter how small you should benefit as that company makes money, shouldn't you.
It does not make a lot of sense to invest into a company unless you are going to be rewarded for it. And one way of rewarding them is by sharing income with them.
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.
Most companies will actually raise their dividends even when the company is not making any money with the hope that the demand will come and save the company. Watch out for this, you don't want to buy a company just because of the dividends.
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.
About the Author:
Investing money in dividend paying stocks can be a good idea, but only when they are backed by strong stocks.
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