Numerous benefits are bound to arise when you invest in companies offering dividends. More so if you are planning to invest on a long term basis. Apart from providing consistent income, there are various dividend paying stocks that is available in the defensive sectors which may weather the economic storm with reduced volatility. The dividend yield funds or companies have substantial amount of cash and hence turn out to be good companies that has long term growth prospects.
A dividend is a regular payment that is obtained from the earnings of a company and paid to a particular class of shareholders. Though cash dividends are common, dividends may be issued as stocks or other property. But all the companies do not pay dividends. A dividend paying stock enables an investor to earn profit in two ways. Firstly it would be via an appreciation in the value of the stock and secondly by distributions made by the company. Most of the companies are known to pay dividend on a quarterly basis. An investor who has already retired may move towards dividend stocks as a form of an income.
Plans of dividend reinvestment
It is a common occurrence that people may invest the passive funds from the dividends back into the stock. A lot of the companies have dividend reinvestment plans, which allows investors to use dividends to be purchasing a lot of shares in the company. This strategy allows an investor to build a legal position in a company over a period of time.
The companies are not known to charge additional commission for these share purchases. Some of them even roll out discounts of 1 % to 5 % on the share price. It becomes easy for a company to provide dividend reinvestment option as they benefit from term investors who are associated with the company for a considerable period of time.
More about dividend
The companies that pay dividends turn out to be strong performers. But they are able to provide dividend yield funds to the investors since they have considerable amount of cash with them. A dividend paying company is known to dish out a better performance. Even the volatility is on the lower side during this point of time.
In spite of all the benefits there are certain risks associated with dividend paying stocks. One of the reasons is that it is subject to changes in prices at the market place. If a company experiences a downturn in the market, there is a strong chance that it will reduce the amount of dividend or could remove the dividend entirely.
Dishing out of dividend redistributes the profits of the company to the shareholders. Some of the shareholders seek out dividend for profit purposes or they are looking to reinvest the profit back to the company. Consistent dividends can be a profit sign for the company.5 paisa is a perfect platform that will give you an idea about the better performing stocks in the market.