Dividend stocks are a good way to build long term, sustainable wealth. A dividend is simply a cash payment made to stockholders once the company begins to turn a profit. While most companies pay dividends in cash, some companies pay out dividends as additional shares. This is called stock shares. When companies opt for cash payments, shareholders are usually paid out quarterly, although companies pay out annually. It is rare for a company to pay out dividends monthly, although it does occur.

Companies have been paying dividends for hundreds of years. Recently, dividend stocks have become very popular investment options and they have outpaced non-dividend stocks over the last five years. Dividend payouts are determined on a per share basis, and the cash is usually deposited into the investors brokerage account. If a stockholder buys his or her shares from the company itself, generally through a DRIP plan, the dividends can be automatically redirected to buy more stock. If a company’s liquidity is not readily available, the company can issue additional stock to shareholders. This additional stock is generally paid in the form of fractions of additional shares.

A company’s ability to pay dividends to shareholders is a good indication of the company’s overall financial picture. By paying dividends, the company suggests that its future earnings, prospects, and performance. Newer, “growth” companies may not pay dividends to stockholders. If a company is in a period of rapid growth and expansion, it may choose to re-invest its profits into research, development, and production. Microsoft, for example, invested its profits back into the company for eighteen years following its very successful initial public offering. Dividends are usually paid out by older, more established companies, and are a good sign, but not the only sign that the company is on solid financial footing.

Dividends can provide investors with a good picture of a company’s true value. Current financial models assume that a company’s share is worth the total of all its dividend payments. This capital asset pricing model recognizes that dividends are an important variation of cash flow and reflects heavily on the total value of the company. Dividends also serve as a system of checks and balances for the company, as stocks that pay out dividends are less likely to reach unsustainable values because investors tend to put a ceiling on these returns. Companies that pay dividends tend to also have good internal management practices. Analysts suggest that companies that pay dividends are more efficient and effective in their use of capitol, are less likely to over pay for acquisitions, and less likely to practice risky or questionable book keeping practices. When earning and dividend payments are expected annually, quarterly, or bi-annually, it’s harder to “cook the books” and manipulate profitability.

Dividends provide a quick glimpse into the profitability of a company. They serve as a snap shot into the overall management strategy and give investors and potential investors a clue about the company’s profitability. A company that has a “paper profit” is a good investment; a company that pays dividends is a great investment.

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Are you looking for more information regarding dividends? Visit http://www.smart-investing-in-stocks.com/invite.html today for more information!

Author Bio: Are you looking for more information regarding dividends? Visit http://www.smart-investing-in-stocks.com/invite.html today for more information!

Category: Finances
Keywords: dividends