What is a Dividend and Why Would You Want Dividend Stocks?

what is a dividend
First, what is a dividend? A Dividend is a payment made by a corporation to she shareholders. Dividends are usually made in the form of a cash deposit or share re-distribution, where the investor gains more shares of the corporation as the dividend payment.

In simple terms, with dividend stocks, you get paid just for owning the stock!

Dividend rates are set as a specific dollar amount per share. They are paid quarterly by the majority of corporations. If a dividend is $2.00 per share, you can expect $0.50 (or 1/4th the annual dividend) per quarter. You may see a percentage when looking for a stock's dividend and that is the average percentage of each share that the corporation pays annually as a dividend. So if you see a stock that is worth $100 per share and the dividend shows 4%, you can expect $1 per quarter (or $4 per year) as a dividend payment. The percentage is just the annual dividend amount divided by the stock price.

At this point, I will interject and tell you why you should really consider buying dividend paying stocks.
• If you are worried about a stock dropping, dividends can ease your mind. You see, if you buy and hold a stock that pays a 3% dividend, you've got some room to work with. Even if that stock goes down 2% over the course of a year, you are technically still at a 1% gain because of your dividend!
• It's free money for investing! With so many stocks out there paying great dividends, you're a little crazy to not consider one that pays you a dividend!
• You can re-invest! With dividends, you can re-invest them and buy more stocks in the company. So your 200 shares can become 230 shares with dividend reinvestment!

Sometimes, a company will make a one-time dividend for a variety of reasons. Recently, Costco announced a one-time dividend of $7 per share. I picked up several shares and enjoyed the dividend in addition to the almost 25% gain of the stock since I purchased it. Being aware of these types of dividends can really help out. The Costco example covered all of my purchase fees and gave me some breathing room for if the stock were to go down (which it has not).

If you are keeping tabs on dividends in order to make purchase decisions, make sure you keep track of the ex-dividend date, or the date that you have to be a shareholder before in order to receive the dividend.

Here's a short list of some of my favorite dividend paying stocks (with current yield % shown):
• Procter and Gamble PG 3.1%
• General Electric GE 3.2%
• AT&T T 5.01%
• Verizon VZ 4.1%
• Seagate Technology STX 3.21%

As always, if you are unsure about an investment, seek a professional's advice. This amateur here says, "invest in dividend stocks" because it's free money!

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