How do you earn from stocks? One way to earn from stocks is through dividends paid to shareholders of the company. Another is through appreciation of the stock price of the company you bought.
Dividends can be in the form of cash or stocks. Dividend will be automatically added to your portfolio through your stockbroker when the payment date for the dividend has reached. When you bought dividend stocks or stocks that pays dividend, you will earn a passive income from the dividends paid.
When a company makes a profit for a certain period, just say in a year, a company usually share the profit to its shareholders by paying dividends. If the company does not pay dividends even if it makes a profit, I think it is not a good company to invest in. This kind of stock is what we call growth stock. Meaning, the company use the profit to invest more on other projects hoping the stock price will appreciate.
Dividend is a form of passive income. The dividend stock will always give you income as long as you hold the stock. So I think it is advisable to concentrate your stock investments to stocks which pay dividends if you’re goal is for long-term investment.
In conclusion, a company pays dividend because it share its profit to stockholders in the form of cash or stocks. So it is also a good strategy in investing in stock to pick those stocks that gives high and increasing dividends through the years.
In a long-term investment in stocks, a high yielding dividend stocks are surely worth the investment you will put in it because it will give you income every time the company will share its earnings to the shareholders.