What are Dividends?

Like free money? Dividends are about as close as you can get, and it’s as easy as investing in the right stock.

When you invest in a stock, you buy a small portion of a company. The value of your stock rises and falls in conjunction with the performance of that company. But when you buy stocks that pay dividends, you get a little bonus. When these stocks earns a profit, it shares some of that profit with stockholders.

What do you need to do to get in on that action? Nothing. As long as you own the stock, you are eligible for monthly, quarterly, or yearly dividend payments. While dividends aren’t guaranteed, most companies are reluctant to cut them as that sends a troubling signal to investors. That makes investing in dividend stocks a low-risk, steady way to bring regular income into your portfolio.

When a company pays a dividend—and especially if it makes an effort to increase that payment every year—it shows that it cares about rewarding shareholders. These payments are also a savvy way to attract investors, which is why their share prices typically appreciate over time.

What do these stocks look like? They tend to be household names like Target Corp. (TGT), CVS Health Corp. (CVS), and Best Buy Co. (BBY).  But you’ll also find a number of lesser known companies that have paid consistent dividends for years.

To find these stocks, 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. Dividend stocks become more powerful, and usually make up a larger part of your annual return, the longer you hold on to them.

To learn more and find out how to invest in the best dividend stocks, download our FREE report, Cabot’s 5 Best Dividend Stocks. It’s your guide to finding the investments that will fund your future.