Many beginners hear about dividends but dont always fully know what they are. In simple terms, dividends are profits that companies share with their investors. When a company like Coca-Cola, Johnson & Johnson, or Microsoft makes a profit, part of that profit can be used for growth, while another part may be paid out to stockholders.
Dividends are often sent every three months, though some companies pay monthly. For example, AT&T, Procter & Gamble, PepsiCo are known for steady payouts.
Why do dividends matter? They offer a financial cushion. Imagine owning shares of Coca-Cola: every quarter, you get paid simply for holding the stock. Over time, reinvesting those dividends creates compound growth.
Not all companies pay dividends. Growth firms like Tesla, Amazon, Alphabet usually fund expansion instead. Dividend stocks are more common in stable industries, like utilities, consumer staples, financial services.
There are also extra payouts when a company has extraordinary results. For example, Microsoft or Costco sometimes surprise investors with special distributions.
Investors should consider the dividend yield. A high yield may look tempting, but if the company is struggling, it might be at risk of cuts. On the other hand, companies called consistent payout leaders have increased dividends for decades, including Coca-Cola, Johnson & Johnson, McDonalds.
The benefit of dividends is that they provide stability even when stock prices fall. Retirees often prefer dividend-paying stocks because they create steady income without selling shares.
In conclusion, dividends are a cornerstone of investing for many investors. By focusing on stable companies, reinvesting earnings, and choosing wisely, one can build passive income.
