What is a Dividend?

A dividend is a reward paid to the shareholders for their investment in a company’s equity, and it usually derives from a companies net profits. Dividends are decided and managed by the company’s board of directors. Cash dividends are most common, and either get mailed as a check or reinvested into the company. Along with companies, numerous ETFs and mutual funds also pay out dividends. Valuable companies have histories of maintaining and increasing their dividend even during times of economic collapse. These companies are known as the dividend kings, they are companies that have increased their dividend payout for the past 50 years. 

The Importance Of Dividends

In my opinion, every long term stock portfolio should have a variety of dividend stocks and growth stocks. Owning some dividend stocks will assure that your account is still making money throughout and economic depression. Dividends also bring a third dimension into your portfolio, not only does the stock move based on time and price being y=x is a straight line with reinvested dividends your stocks are affected by time, price and reinvestment giving you a y=x^2 graph for your share, which means your stocks increase exponentially compared too owning a stock without dividend payment.



Categories: Financial Information

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