Dividends refer to the payments that a company distributes among its shareholders for a stock you own as a way to share its profits. These payments are usually made at regular intervals and are one of the ways that investors can earn a return from investing in stocks. Dividends can be paid out in cash, which can be reinvested or used as income, or they may come in the form of additional shares.
However, not all stocks offer dividends. If you are interested in investing for dividends, you will need to specifically seek out dividend-paying stocks. Or a specific dividend ETF that can hold a basket of companies that pay out dividends
Investing in dividend-paying stocks can be attractive to investors for several reasons:
Income generation: Dividends can provide a steady stream of income for investors. This can be especially useful for retirees or those who are looking for a regular source of passive income.
Lower risk: Historically, dividend-paying stocks have offered lower volatility and lower risk compared to non-dividend-paying stocks. This is because companies that pay dividends tend to be more established and financially stable.
Long-term growth potential: Companies that pay dividends tend to be more established and have a track record of consistent earnings growth. This can be an indication of long-term growth potential for the stock price.
Inflation protection: Dividend payments can provide a hedge against inflation, as companies often increase their dividend payments over time to keep up with inflation.