What Is a Dividend Paying Stock

Why write on a topic that seems very obvious? Because I have been asked this question many times in the past, and even very recently. What is common knowledge to me may be an entirely new thing to someone else.

So, if you already know the answer. No worries. Feel free to move on to the next article.

First of all, what is a stock?

Very simply put, a stock is nothing more than a piece of a business. For these purposes we will be referring to publicly traded companies. In other words, shares of stock from companies that are bought and sold on the open market in what are called exchanges.

In the United States we have the New York Stock Exchange and the Nasdaq, for example. Almost all countries have some sort of stock exchange where shares of stock of publicly traded companies are exchanged.

When you own a share of a publicly traded company, you are essentially a part owner of the company. As such, just like any owner, you have certain voting rights, and of course, you can share in the profits that the company makes.

These portions of profits are called dividends. In most cases, at least here in the U.S., boards of directors meet and discuss many aspects of the business, and make certain decisions around how the company operates among other things. They also choose the CEO, or choose to fire one.

They also declare dividends. They decide when they will be paid and how much will be paid.

So, with that in mind, a dividend paying stock is simply shares of stock in a publicly traded company that offers a dividend. Usually paid out on a quarterly basis.

Many companies do not pay dividends at all. There are myriad reasons for this, but that is not the purpose of this topic to discuss. All you need to know here is that a dividend is a portion of profits the company makes that is paid to its owners.

You. The shareholder.

The stock market, over the years, has been a very important part of wealth building. What it essentially does is allow everyone to participate and be a part of business. A business may be worth billions or trillions of dollars. But you can become a part owner for a very small amount of money, and reap the benefits of ownership (granted to scale) of any other business owner.

Of course, knowing what companies to buy, and how to determine if a stock is right for you is an entirely different topic as well. At some point in the future it is quite likely I will provide some thoughts and ideas on this, since I have been a stock market guy for better than 30 years.

If you want to know more about the stock market and how it works, I always recommend doing a lot of homework. Read articles and read books. There is a ton of information out there that is available to guide a novice through the learning process.

And it is a good idea to learn all you can about it. I have always strongly believed that some of the best opportunities to truly grow your wealth is by taking on ownership of businesses that are successful, and that are eager to share their success with you.

Lead image courtesy of Pixabay, user coloringcuties. New York Wall Street Stock - Free photo on Pixabay