Definition Definition

Understanding the Dividend Stock with Practical Example

What Is Dividend Stock?

Any stock that pays a dividend is referred to as Dividend Stock. A proportion of a company's profits that are distributed to its shareholders in the form of cash or stock is a  dividend. One will receive the payment automatically if he/she owns a share of that company or fund. 

Fast-growing businesses may decide to reinvest their revenues to achieve even greater success. Well-developed and mature firms are more likely to distribute a portion of their profits to shareholders in the form of dividend payments regularly.

Dividend rates are usually calculated in terms of the amount of money you will receive in a given year. Which is usually a proportion of the stock price.

Practical Example

If a stock costs $ 1000 per share and pays a $10 dividend, the dividend rate is $10 and the return is 1%.

When it comes to investing, dividend payments may appear negligible in the short term.

On the other hand, dividends have accounted for a substantial share of total stock market returns over the long run.

Since well-established businesses with a proven track record generally pay dividends during volatile periods, investors frequently flock to these types of companies.


Use of this term in a sentence

  • Dividend stocks tend to decline less than growth equities during the volatile phase of the market.
  • Whether to buy dividend stocks or dividend mutual funds is a critical decision to make for the investors.


Category: Economics
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