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What are dividend stocks?

  • 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. 
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