What is a dividend and is it important for a stock to pay dividends?
A cash payment, using profits, announced by a company’s board of directors and distributed among stockholders. Dividends may be in the form of cash, stock, or property. All dividends must be declared by the board of directors. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move all that much, but the dividend attempts to make up for this. It is not important for stocks to pay dividends. Many of the best growth companies do not pay dividends; they reinvest their earnings back into the company. Investor’s looking for growth companies should not be concerned with a stock’s dividends because the greatest gains will come from price appreciation rather than dividend payouts. A stock down 30% that delivers a 4% dividend still represents a 26% loss overall.
