What are Dividend Paying Stocks? | Dividend Investing Made Easier

Dividend: A sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves)

Dividend paying stocks represent an income solution for investors in today?s low?yielding?environment. But what exactly is a dividend??? This short video, by wallstreetsurvivor.com, offers a simple?explanation:

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Video Transcript:

What is a Dividend??

A dividend is a payment by a company to it?s shareholders. These payments are a sign that the company is doing well and can?afford?to pay the owners back.

(For Example:)

Here?s Don. Don has a design company called ?Don?s Studio?. Don?s Studio has been around for 10 years and has really hit it?s stride lately by creating some killer websites for some huge clients. Three?years ago Don raised some money to grow his business by issuing stock to investors. His company has ten investors who each invested $10,000 and were rewarded with one share in return. Because Don?s studio has been doing well, he has more profits then he ever had before. Now Don has two choices: he can reinvest the profit into the company?s growth or he can reward his shareholders by paying them dividends as a kind of thank you for taking on the risk of investing. This reward encourages the now happy shareholders to keep the company?s stock and also makes the stock more attractive to other investors, and therefore?more valuable.

In the real world, companies that pay dividends use a mixture of both these methods. Dividends are usually payed out quarterly. Not every company pays dividends though. Generally a company that is new or in the growth stage of its life needs all the cash it can get its hands on to fund its growth. Companies that do pay out dividends are usually large, much more mature companies. But there are exceptions to the rule.

You can see if a company has issued dividends in the past by looking at the company?s ?div yield? section on the quote page.

So how do you know if investing in a dividend paying stock is right for you? Well, if you are more interested in a stable, regular income then investing in the next big thing, then dividend investing is probably right for you. But in general, everyone should own at least a few dividend paying stocks in their portfolio?

[end video]

Due to various factors, including changing market conditions and/or applicable laws, the presented material(s) may no longer be reflective of current opinions or positions. The thoughts and opinions expressed in the presented material(s) relate only to the video?s author and are not?necessarily?reflective of PWM?s views. Moreover, you should not assume that any discussion or information contained in the presented material(s) serves as the receipt of, or as a substitute for, personalized investment advice from PWM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.

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