While dividends are the only direct income (money paid out), the total return of holding, a stock is the dividend plus the capital gain of the stock price.

Dividend-paying stocks consist mainly of well-established and mature firms. These companies have grown to a point where they are now leaders in their industries, characterized by having slow but very steady earnings growth. These established companies are mainly concerned with keeping shareholders happy with dividend payments. These companies tend to maintain dividend payments, providing a sense of safety to investors looking to diversify into the equity markets without the high risks of investing in growth companies.

In the past, the market considered non-dividend-paying stocks to be typically growth companies, since expenses from growth initiatives were close to or exceeded their net earnings. This is no longer the rule since a transformation has occurred in today's modern market: firms have decided not to pay dividends under the principle that their reinvestment strategies will, through stock price appreciation, lead to greater returns for the investor. Thus, investors who buy stocks that do not pay dividends prefer to see these companies reinvest their earnings to fund expansion and other projects which they hope will yield greater returns via rising stock price. Although these are generally small- to medium-cap companies, certain large caps have also decided not to pay dividends in the hopes that management can provide greater returns to shareholders through reinvestment.

  1. Why do some companies pay a dividend, while other companies do not?

    There are several reasons why a corporation might pass some of its earnings on as dividends or reinvest all of its earnings ... Read Answer >>
  2. Can dividends be paid out monthly?

    Find out if stocks can pay dividends monthly, and learn about the types of companies most likely to do so and how monthly ... Read Answer >>
  3. Which is better a cash dividend or a stock dividend?

    The purpose of dividends is to return wealth back to the shareholders of a company. There are two main types of dividends: ... Read Answer >>
  4. If I reinvest my dividends, are they still taxable?

    Take a brief look at how the Internal Revenue Service taxes different kinds of dividends, including taxation on dividends ... Read Answer >>
  5. What is the difference between yield and dividend?

    Learn how to differentiate between dividend yield and dividend return, and see why dividend yield is the more popular rate ... Read Answer >>
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  1. Forward Dividend Yield

    An estimation of a year's dividend expressed as a percentage ...
  2. Equity Income

    1. Dividend income that is earned through an investment in stocks ...
  3. Capital Dividend

    A type of payment by a firm to its investors that is drawn from ...
  4. Stock Dividend

    A dividend payment made in the form of additional shares, rather ...
  5. Indicated Yield

    The dividend yield that a share of stock would return based on ...
  6. Accumulated Dividend

    A dividend on a share of cumulative preferred stock that has ...
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