Value Investing- What you Need to Know About Dividend Stocks

By: jlucy668

Many people make the decision to invest in dividend stocks and maximize on the prospects of steady payments as well as the chance to reinvest dividends to buy additional stock shares. Since several dividend stocks serve as a representation of companies that are generally regarded as financially mature and stable, stock prices of such companies are likely to increase steadily over time as shareholders continue to enjoy dividend payments periodically, which is a worthwhile outcome for investors.

Additionally, well-established companies usually raise dividends as time goes on. Although there may be no guarantees, companies that have earned the reputation for being able to deliver dependable dividends that are raised over time will work hard to ensure that investors are not disappointed.


Financial Well being and Consistent Cash Flow

Companies that pay to rise, consistent dividends are typically financially secure firms that have the ability to generate cash flow consistently and this cash produces the dividends. Such companies are likely to be stable with less volatile stock prices than the general market. Subsequently, they represent a lower risk in comparison to companies whose price movements are more volatile and do not pay dividends.

Since many dividend stocks are a lower risk, younger people who seek a solution for generating wealth on a long-term basis and older adults who aim to establish a steady flow of income during retirement perceive dividend-paying stocks as an appealing investment option.


Dividend Compounding

Dividends normally give investors the chance to maximize on compounding. This involves generating earnings and reinvesting them to generate more earnings eventually. Dividend compounding occurs happens when you reinvest dividends to buy additional shares that result in more dividends. Over time, money had the potential to grow, especially when you reinvest earnings. Click here for Canadian dividend stocks.


Reinvesting Dividends

Dividend investors can take advantage of compounding with the following things:

  • Time.
  • Making an investment.
  • Earnings.
  • Reinvesting earnings. In terms of dividend investing, receiving and reinvesting you dividends frequently gives you a higher eventual return rate.


Reinvestment Plans

Dividend reinvestment plans may be offered by companies that enable investors to reinvest their cash dividends automatically by buying fractional or additional shares on the day that dividend payments are made. This can give you a great way to maximize on the potential of compounding.

  • Rather than receiving your dividend check on a quarterly basis, the entity that manages the reinvestment plan, such as a brokerage firm, transfer agent or the company, places the money cash directly towards purchasing more shares.
  • Several reinvestment plans for dividends enable you to purchase more shares at a discount or commission-free. When a company operates the reinvestment plan, usually there is no commission because brokers are not involved.
  • Some dividend reinvestment plans may extend an offer to shareholders that will let them buy additional shares directly from the company in cash at a significant discount.


A dividend refers to a cash payment that is derived from company earnings. It is typically announced by the board of directors of the company and distributed to shareholders. Dividends give investors a share of the profits that companies make and these are given to them as part- owners companies. Dividends give investors a way to gain profit from owning stock without getting rid of their company stake.


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