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The different types of investors

Dividend Paying Stocks

Dividend Paying Stocks

A dividend is money that a stock pays its shareholders for owning the stock. The stock shares the profits with its owners. When you own shares of a stock, you become one of their business owners and you own part of that company. Because you own part of the company, you also entitled to the profits that the company makes if the company pays dividends. The profit from the company gets divided and distributed among all the shareholders. The word dividend comes from the divided.

It is important to choose a dividend paying stock carefully so that you would know that the stock can consistently pay dividends, year over year. One way to find out if the dividend paying stock is a good stock is to look at the stock’s past performance. A stock that has paid dividends consistently historically has a good chance that it will be able to continue to pay the dividends consistently in the future. History doesn’t always repeat itself but it often rhymes. The other way to find out if it is a good dividend paying stock is to look at the stock’s finances. For example, if stock A has earned $10 million in profits in 1 year and the company has paid its shareholders $5 million in 1 year, the company has paid only half of its annual profits to the shareholders and therefore we can tell that there is a good chance that the company will be able to continue to pay its shareholders dividends every year. In contrast, stock that has earned profits of $10 million in 1 year and has paid its shareholders $11 million in dividends in 1 year will not be able to pay its shareholders dividends every year because they don’t have the money to do so.

It is important to invest in dividend paying stocks that increase that increase their dividend payouts annually, every year. A good starting point would be to purchase a dividend paying stock with a dividend yield around 3% and a dividend growth of 10% per year. A good example of a dividend paying stock with around 3% dividend yield and around 10% dividend growth is Microsoft, with the ticker symbol MSFT. Microsoft has a dividend yield of 3% and a dividend growth of 12% per year. If a person had bought 100 shares of Microsoft at $35 per share, in year 1 the person would be paid a dividend of $105. By year 14, he would have been paid total dividends of $3,401.22.