The stock market generates two broad types of returns: dividends and capital gains. Capital gains occur when a stock appreciates in price and an investor sells at a higher price than he or she originally purchased the stock. Dividends function more like interest payments and are paid to existing shareholders directly from the revenue stream of the underlying company. Stocks that tend to produce higher dividend returns are often called "income stocks," while stocks that appear to have greater opportunity for price appreciation are called "growth stocks."
While any company can pay dividends, certain companies have historically yielded higher dividends for their shareholders than others. Dividends are a tenuous proposition for many younger, growing companies because any paid dividends subtract from a potential pool of reinvestment capital. For this reason, dividends tend to come from more established companies with solidified cash flow.
Certain sectors also tend to have more dividends than others. Historically, telecoms and utilities have capitalized on their local monopoly powers to lock in predictable revenue streams and provide excellent dividend yields. Technology stocks can sometimes pay high dividends, although with more variance than with utilities. Dividends in technology and biotech tend to be more hit or miss because of the high emphasis on growth.
Companies declare dividends to signal financial health and confidence in future prospects. However, dividend signals are strongest after a company repeatedly pays dividends over a period of time. Companies that rush to pay too many dividends too quickly may find themselves stunting growth, sabotaging cash flow or reducing their ability to handle contingencies.
-
Cash dividend or stock dividend: Which is better?
The purpose of dividends is to return wealth back to the shareholders of a company. There are two main types of dividends: ... Read Answer >> -
Are dividends considered assets?
Find out why dividends are considered an asset for investors, but a liability for the company that issued them. Learn the ... Read Answer >>
-
Investing
Why Dividends Matter
Seven words that are music to investors' ears? "The dividend check is in the mail." -
Investing
The 3 Biggest Misconceptions of Dividend Stocks
To find the best dividend stocks, focus on total return, not yield. -
Investing
Is Dividend Investing a Good Strategy?
Understanding dividends and how they generate steady income for shareholders will help you become a more informed and successful investor. -
Investing
The Top 5 Dividend Paying Oil Stocks for 2016
Discover the top five dividend-paying oil companies for 2016 and what factors contribute to their ability to continue dividend payments. -
Investing
Dividend Yield For The Downturn
High-dividend stocks make excellent bear market investments, but the payouts aren't a sure thing. -
Investing
WMT: Wal-Mart Dividend Analysis
Wal-Mart raised its dividend for the 43rd consecutive year, despite losing over 25% of its market value in 2015, and its dividend remains healthy in 2016. -
Investing
5 Dividend Growth Stocks Posed For Higher Dividends (V, NKE)
Learn about five companies that have a strong history of consistently growing their dividend payments and have the potential to continue doing so in the future.
-
Dividend Yield
A financial ratio that shows how much a company pays out in dividends ... -
Accumulated Dividend
An accumulated dividend is a dividend on a share of cumulative ... -
Property Dividend
An alternative to cash or stock dividends. A property dividend ... -
Indicated Dividend
The total dividends that would be paid on a share of stock throughout ... -
Interim Dividend
A dividend payment made before a company's AGM and final financial ... -
Capital Dividend
A capital dividend is a type of payment a firm makes to its investors ...