What is Dividend stock?
Dividend stock is stock in a publicly or non publicly traded company. What separates a dividend stock from a regular stock is that a dividend stock belongs to a company that pays out a part of their profit each year to the shareholders as a dividend. The dividend is paid out directly to you and dividend stock give you return on your shares without the need to sell the shares. Each year you get a return in the form of a dividend.
All stocks that pays a dividend is technically a dividend stock but the term is more commonly used to refer to stock with a high reliable dividend. Companies that are know to always pay a dividend and that are know to increase the dividend year over year.
When someone say that they prefer to invest in dividend they are referring to companies that pay a large dividend each year
How does it work?
Dividend stocks is traded in the same way as regular stock. I am not going to cover that in detail here. Instead I am going to focus on how dividends work.
It is up to each company to decide if they want to offer a dividend or not. Companies does not have any obligation to return any of their profit to the share holders. The company can chose to use the money for other investments or to keep in the company in case they need it later. Some companies have a police to pay a certain amount of the profit to their shareholders each year. The shareholders can force a company to pay a dividend if a large enough amount of the share holders vote to do so at a share holders meting. It is very rare for this to happen. The share holders usually follow the company recommendation regarding dividends.
A company can pay out more money than they earned that year. They can also chose to spin of a part of the business to the shareholders.
Some companies chose to give a quarterly dividend. Others pays it yearly. Yearly is most common among European companies while US companies are more likely to pay their dividend ever quarter.
The dividend is paid directly into your stock account in relation to how many shares you own. Each shareholder get the same dividend per share of the same class but someone who own more shares will get a higher total amount. Some companies have preferred shares that gets a higher dividend each years. Preferred shares might get a dividend even if regular share holders don’t get any dividend.
Can you earn money?
Yes dividend stock is a good way to make money on the stock market. Dividend stock allows you to build a passive income that keeps on paying you without the need too sell any shares. A dividend portfolio keeps increasing in value year after year and will pay you an ever increasing dividends each year.
The portfolio allow you to make money in two ways. The stock can increase in value and allow you to sell them for a profit or you can keep thee stock and earn a profit from the dividends.
It is possible to build a dividend portfolio that gives close to 5% yearly yield in dividend payments only.
Who should trade ?
Dividend stocks is a good option for everyone. They are a great way to invest that requires little knowledge and little effort. Dividend stock is a large part of the investing strategy of Warren Buffet. It is a slow but steady way to earn a lot of money and become wealthy. One of the biggest benefits of dividend stock is that they allow you to build a passive source of income.
Is it a scam?
No. Dividend stocks are not a scam. It is one of the safest and most well established investments available.
Do you recommend?
Yes. I highly recommend dividend stocks. It is a good choice for almost every one. This is especially true for all those who know little about the stock market and want a good easy way to earn a large return.
Dividend stocks are also the perfect option for your retirement. You can build an income that you can live on without you having to sell your stock to do so. Dividend stock will provide you with a growing pension each year as their value and dividends grow. You never have to worry about running out of money no matter how long you live. If you have enough to live on when you retire then you are very likely to be even better of 10, 20 or even 30 years later.