What is the whole idea behind dividend stocks?

Question

I understand that dividend stocks are companies which pay their investors a dividend. I know nothing beyond that. Can someone explain to me what these dividends are, how they are paid out, how you find out who offers them, etc.

Answer 1

Sure, I can help. Dividends are usually paid out quarterly; however, there are always exceptions. Your account will automatically show the dividend if your stocks are held in street name (that is, by your brokerage). Some dividends can automatically be reinvested to purchase more shares... only your broker will know if that option is available to you on a particular company. You'll find that utilities typically pay dividends... but many other industries do as well. You can research companies that pay dividends by using the stock screener on Yahoo! Finance.

Answer 2

You can take a look at a companies financial statements. Mainly their cash flow. If they have a part that says dividends paid, basically that company pays dividends.

Dividends are basically the net income of the company, less what the company keeps to re-invest in other projects. Some companies decide not to pay out dividends and just put the money back into the company to help the company grow faster. Others may want to pay out dividends to keep the investor happy while keeping some for themselves.

A company that pays out a dividend this year may not necessarily pay out a dividend next year and vice-versa.

Something else to take note of is there are preferred shares and common shares. Generally, preferred shares get dividends if common shares get dividends, but commmon shares may not get dividends if preferred shares get them. However, common shares generally have voting rights that preferred shares dont.

Dividends are paid out on a per share basis. So basically whatever they are not plowing back into the company, they divide it by the number of shares that they have and give that amount to everyone who holds the shares.

Hope this helps...!