What is a Dividend and Why Would You Invest in Dividend Stocks?

Dividends are payments made by a company to its shareholders, usually quarterly, but sometimes monthly.

Here’s how dividends work

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.

What Is a Dividend Yield?

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.

Do Index Funds Pay Dividends?

There are many index funds (ETFs or mutual funds) that have sold some of their holdings and returned the profits to the shareholders, rather than investing them. This means that they aren’t indexed to stocks with dividends.

Best Dividend Stocks to Buy and Hold

Well-established companies that pay dividends will typically increase their payouts from year to year.


When a recession is looming, the Dividend Kings and Aristocrats are a good bet in those times.

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