Dividend investing is a popular way of investing into stock, but what is a dividend? What does it mean to start buying high dividend paying stocks and what are the benefits of doing this?
A dividend is simply a regular payment that a company sends to it’s investors in order to share it’s profits with them. After a company has made all of it’s payments and still has money left over it can issue a dividend. Everyone who owns the stock can receive the dividend and use it however they see fit.
The company’s dividend yield tells its investors how much dividend they can expect to receive from their investors each year in addition to the appreciation of the stock. For example if the dividend yield ratio is 5%, this means if you invest $10,000 into the stock you should expect to receive approximately $500 off of the security in smaller payments throughout the year.
There are certain advantages of looking for dividend investing opportunities. First of all, you get extra money in addition to the appreciation of the stock. If the company is strong it will likely appreciate over time, if it also pays a dividend that is just icing on the cake.
A second benefit is that a stocks yielding high dividends will eventually pay for itself if it is held for a long enough time period. For example if the dividend yield is 5% it will pay for itself in 20 years. After that all of the appreciation on the stock, dividends, and what you originally bought the stock for are all pure profit.
Finally if a stock is issuing a dividend regularly it could indicate that it does have a lot of cash flow coming in. If it does that would mean that the company is likely to be around forever. Do your research of course, but it could be a sign of a strong company.
