Business & Finance Investing & Financial Markets

The Power of Dividend Paying Stocks

    Identification

    • There are two types of stocks---those that pay dividends and those that don't. Companies that pay a dividend distribute a portion of its profits to owners of its stock every quarter and use the remaining profits to keep growing.

    Benefits

    • If you buy shares of a company that doesn't pay a dividend, you have to spend own money. With dividend stocks, you can buy more shares of a company's stock by reinvesting all or a portion of your dividends.

    Inflation Hedge

    • Rising inflation can take a bite out of any fixed stream of income. But dividend stocks can offset the effects of inflation. Inflation causes companies to charge more for their products, which allows them to earn more and pay their investors higher dividends.

    Considerations

    • Even though a company may have a long history of paying a consistent dividend, companies are not required to pay them. A corporation's board of directors can decide to cut or eliminate their dividends if profits take a nosedive.

    Warning

    • Never invest in a dividend stock simply because it pays the highest dividend. A high dividend may be a sign that the company's stock price has dropped significantly and the company is experiencing financial difficulties.



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