Dividends are payments made by a company to its shareholders, usually quarterly, but sometimes monthly. They are a distribution of the company’s profits to the shareholders or investors.
Let’s say you buy 1,000 shares of XYZ company, and its paying out a cash dividend of .25 cents per share per month. That means you would be receiving an income of $250 per month from that dividend payout.
You could also reinvest your dividends right back into your portfolio. Which, if you’re on the younger side, you should definitely do! This is the best way to take full advantage of the effects of compounding.
The dividend yield is usually expressed as a percentage, and is the amount of money a company pays its shareholders for owning a share of its stock divided by its current stock price.
The thing about dividend stocks though, is that they are more established companies that are not in “growth mode”. So instead of reinvesting the profits back into the company, like growth stocks do, they distribute it to the shareholders.
This theoretically would mean the stocks should be less volatile, meaning they would not have huge swing sin stock price up for down. So for very long term investors, growth stocks may offer a better return (with more volatility in the short term).