What is a dividend and how does it work?

A dividend is a portion of a company's profits paid out to shareholders, usually on a quarterly basis. When you own a dividend-paying stock, you receive these payments either as cash deposited to your account or as additional shares if you choose dividend reinvestment. These profits are distributed based on how many shares you own—for example, if a company pays a $1 dividend and you own 100 shares, you'll receive $100.

What does "dividend yield" mean?

Dividend yield represents the annual dividend payment as a percentage of the stock's current price. For example, if a $100 stock pays $4 in annual dividends, its dividend yield is 4%. This makes it easier to compare the income potential of different dividend stocks regardless of their share prices. Higher yields generally offer more income, but extremely high yields (above 6-7%) may indicate potential payment sustainability issues.

What makes a company a "dividend aristocrat"?

A dividend aristocrat is a company that has increased its dividend payment every year for at least 25 consecutive years. These companies, like Johnson & Johnson (JNJ) mentioned in this collection, demonstrate exceptional financial stability and a strong commitment to shareholder returns. They're often considered reliable core holdings for income-focused investors due to their proven ability to maintain and grow dividend payments through different economic cycles.

What is a REIT and why is it included in dividend stocks?

A REIT (Real Estate Investment Trust) is a company that owns, operates, or finances income-producing real estate. REITs like Realty Income (O) are required by law to distribute at least 90% of their taxable income to shareholders as dividends, making them attractive for income-seeking investors. This structure allows you to invest in real estate and receive regular income without directly buying or managing properties yourself.

How can dividends protect my investments during market volatility?

Dividend payments provide a cushion during market downturns because you receive income regardless of stock price fluctuations. Companies that consistently pay dividends tend to be more established, less speculative businesses with stable cash flows. This stability often means their stock prices may be less volatile during market turbulence. Additionally, receiving regular dividend payments can help offset temporary declines in stock values, giving you income while waiting for potential price recovery.

16 handpicked stocks

Profit Sharers

These established market leaders don't just generate impressive profits—they're committed to sharing that wealth with you. Carefully selected by our analysts, these dividend powerhouses offer both reliable income streams and the stability of industry-leading businesses.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17