t is often said that grandchildren are life’s dividends. But you don’t have to wait until you become a grandparent to reap dividends—if you are a savvy investor.
First—let me define a dividend. A dividend is a reward given to a corporation’s shareholders for owning their stock. This is a two-way street as dividends are also a great way for companies to attract investors to buy their stock.
Dividends provide investors with a steady payment of income, (usually quarterly, semi-annually or yearly) and also give them the opportunity to reinvest their dividends to purchase more shares of stock in that company. If reinvested, it allows you to earn dividends on your dividends—thus achieving the wonderful benefits of compounding. As an added benefit, the dividend also plays a powerful role in increasing the total return of your investment.
Only large, financially strong companies are able to pay dividends, so dividend-paying companies typically represent lower risk investments. Further, because they are strong companies, their stock prices steadily increase over time. It appears I join some illustrious company in my appreciation of dividend-paying stocks—to quote John D. Rockefeller, the founder of Standard Oil Company, a behemoth that was at the top of the oil industry, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”