What is a Dividend: Stock Dividends Explained

When you invest in a stock, you are purchasing a small piece of the company that sold you the stock. Originally this small piece of equity would entitle you to a certain percent of the profits that a stock makes according to the number of shares of the stock that you possess. This occurrence is generally called a dividend.

A dividend can be paid out whenever the company chooses to, and as often as the company chooses to. In extreme cases, dividends are often paid out as much as every month, and as little as once a year. This leads many investors to annualize the dividend that companies are paying instead of relying on any one dividend payment.

Dividend payments can also vary quite drastically (although they generally don't) if the company has a significant decrease in operating capacity. This is because the dividends are actually percentages of the profits that the company reaps, if the company reaps no profits then no dividends will be released.

In our modern society there are many companies that do not choose to offer stock dividends. Instead of giving the profit back to the owners (shareholders) of the company, these profits are reinvested into the company in hopes of growing the company. This is why many technology-related companies choose not to offer a dividend.

In fact, in our society not many companies offer significant dividends, but some companies offer extreme dividends. There are a great number of companies that offered around 10% annualized in the form of dividends, and this number is quite astounding. To use 10% as an almost guaranteed base of gain will cause significantly higher total gain.

The stocks that often offer such high dividends often come in the form of real estate trusts or energy trusts. These companies are generally good investments that generally tend to be quite stable.

When investing for the short term it is often acceptable not to put in the extra effort to calculate dividend payments into the total gain of owning a stock. This is because if you are holding stocks for only a few weeks or months, than there will likely be only one dividend payment. However, over time, calculating dividend payments is an absolute necessity. Over the long and extremely long term dividend payments often equal the majority of the profit made by owning a stock.

Some investors even choose to reinvest their dividends in stocks that pay a dividend. This practice allows for the number of shares owned by the investor to increase constantly at an exponential rate. This is but one of many factors that make buying stocks that pay a high dividend yield a good investment.