Investor's Perspective: Dividends Explained
In its most basic form, a dividend is your share of the profits of the stocks that you own. It is important to note that not all stocks pay dividends. Generally, the older and more established companies are known for paying dividends that are usually paid out on a quarterly basis.
On the other hand, high growth stocks in the tech space, for example, and or small-cap stocks do not typically pay out dividends because these types of companies are reinvesting the earnings back into the business in areas such as research & development to further improve its products.
In today's prolonged low-interest-rate environment, you may be or may have already sought out dividend-paying stocks to generate some reasonable income during retirement as an alternative to the bond market. The 10 Year Treasury Bond, for example, is yielding less than 1% in our current environment.
Therefore, dividend-paying stocks can be an enticing alternative if you are seeking a safe vehicle for income-generating assets. Just be aware of, as with any other investment, that dividend-paying stocks also carry some degree of risk.
One of the key points to note here for these types of stocks is that dividends are not guaranteed to be paid out each quarter.
For instance, it is not uncommon for a company to reduce or suspend dividend payouts if profits have taken a significant drop so keep that in mind if and when this happens with any of your stock holdings.
Last but certainly not least, always consult with your trusted advisor before you proceed with any investment decisions.
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Disclaimer: Hudson Wealth Management, LLC (HWM) is a FINRA registered investment adviser firm. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and HWM's fee schedule. The information provided herein is for illustrative purposes only and does not constitute personalized investment advice, recommendations or solicitations to hold, buy or sell any investment or security of any kind. All images and return figures shown are for illustrative purposes only and are not actual customer or model returns. Past performance does not guarantee future results.
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