What Is A Dividend?
Dividends are small reoccurring payments made by large companies to their shareholders. Anyone can buy a dividend stock and start receiving passive income off of their investment.
But why exactly would a company want to start paying out a dividend? It seems like they are getting the short end of the stick. Would you want to pay someone money every month or quarter.
Well there are actually a few different reasons why companies pay out dividends. First of all it just makes sense. When you buy a stock you are actually buying a portion of the company. If you own a share of the company, no matter how small that share may be, you still deserve to collect some of the profits that the company turns up.
It wouldn't make sense if you invested into a business and did not benefit when it made money. So you should benefit if you invest into the company's stock and they made money.
Secondly companies can take advantage of investor's greed by offering a dividend. If a stock has a nice healthy dividend it is going to also have a lot more demand in it. So by raising the dividend companies can attract more investors who will hold onto the stock for longer.
Companies realise this and raise their dividends in order to raise the demand of the stock. Higher demand means that the stock will likely increase or at least stay the same considering that supply and demand are really what drives the price of a stock.
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.
Now that you understand a little bit about dividends is it worth investing into it? Of course it is, however it isn't a wise idea to buy a stock simply because it offers a dividend. Look for other things as well.
Article Source: FxTradingStock.com
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by: Shaun Rosenberg
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Word Count: 354
Date: Fri, 18 Jun 2010
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