What are Dividend Stocks?

Investing in dividend stocks is more than speculation. It’s a good way to build long-term wealth.

You can have a very good reason to believe that a stock is going to rise. But ultimately, the market is unpredictable. Dividend stocks, however, aren’t solely dependent on their share price rising or falling. When you buy a dividend stock, you know for sure that you’ll receive a steady stream of income—generally on a quarterly basis. If the market crashes and the share price begins to fall, you at least have a nice 3% or 4% yield (or higher) to soften the blow.

More often than not, you can trust a company that pays a dividend. Dividends are a measure of a company’s success and its commitment to shareholders, and the companies that consistently grow their dividends are the ones whose sales and earnings are also growing. Companies that lose money or fail to grow are unable to consistently pay a dividend.

Paying a dividend is also a savvy way to attract investors, which is why the share prices of dividend stocks typically appreciate over time.

Dividend stocks aren’t going to make you rich overnight. But they can significantly build up your nest egg if you buy and hold them for years, or even decades. Dividend stocks become more powerful, and usually make up a larger part of your annual return, the longer you hold on to them.

Be aware, though, that not all dividend payers build wealth. You need to search for investments with timelessness and longevity—companies that are sure to not only be around 20 or 30 years from now, but still thriving. 

When buying dividend payers, you have two options. You can either collect the quarterly income or reinvest it to buy more shares. The latter is called a dividend reinvestment, and is an easy way to increase the value of your position without having to do much. You can always start collecting the dividends down the road when you need the income.

To learn more about stocks and investing, download our FREE report, How to Invest in Stocks and Other Investing Basics, today. You’ll learn about the four types of stocks, what it takes to be a successful investor, and you’ll discover five reasons you should skip the broker and invest on your own.