You can purchase stock or common equity in a company, which gives you partial ownership of that company as a shareholder. Dividend stocks, refer to shares in companies that pay dividends (typically cash, additional stock, property, etc.) to shareholders usually two or four times a year. However, unlike a debt investment with fixed, contractual interest obligations, a company can elect to modify its dividend payments at any time.

Assuming strong financial health, all companies can pay dividends on their common shares. But some companies elect to reinvest all available capital in growth rather than pay dividends to shareholders. Generally, more mature companies pay a higher portion of their profits as dividends and younger companies hold more of their profits and cash for growth investments. Theoretically, managers of companies are doing what they believe is best for their investors, which includes you.

For each share of a dividend stock that you own, you receive a dividend payment. Dividends help to reduce risk as you get money back along the way. These dividends can add up over timeā€”even more so if you reinvest.

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