Stocks are part of any well-balanced investment portfolio. Investing in the stock market lets you make money when you buy shares for a lower price than you can sell them for later. However, this isn't the only way to make money from stocks. Dividend stocks offer payments that give owners additional opportunities to profit, in addition to the usual opportunities if price shares rise.
Know What You Buy
You should learn as much as you can about any stock you purchase, especially if it's a dividend stock. Dividend stocks are stocks that include cash payments from the company that issues the stock, paid directly to investors each year or quarter. Every publicly traded company can decide to offer a dividend, or to raise, lower or cancel that dividend. Learn about the company you're investing in and what its prospects for growth are, selecting dividend stocks that have room to grow in value before you will want to sell. In addition, you should learn about its dividend history and calculate how much you can expect to earn in dividends based on the number of shares you plan to buy.
Unlike other stocks, which only earn you money when you sell them for a profit, dividend stocks provide income on a regular basis. The longer you hold a dividend stock, the more you'll make. Even if the share price falls, your annual dividend income will be the same as long as the company decides to maintain the dividend rate. This means you can keep making money by being patient while waiting for the share price to recover.
Companies that offer stock dividends pay investors in cash, or in stock. Stock dividends increase your ownership share in the company without providing income directly, unless you sell the shares you receive as a dividend. You can also choose to reinvest your dividend income by buying more shares. This will result in more dividends the next time a payment is issued, growing your wealth exponentially.
Buy Low, Sell High
Dividend stocks have the same potential to make money for investors by rising in value over time. As with any other stock, you can make money by buying at a low price and selling for a higher price. Price changes in dividend stock generally reflect the company's performance, but they may also relate directly to the dividend. For example, if the company raises the dividend, more investors may want to buy the stock, causing demand (and price) to rise. If there are rumors that the dividend may be cut, investors may move to sell off their shares, causing prices to fall. This represents a good time to buy, especially if the rumors prove to be false.
- John Foxx/Stockbyte/Getty Images