Understanding Dividends for Stocks - A Portfolio's Gains from Payout

Long investors, or people who invest money in the stock market for a period of time greater than a year, can employ stock selection strategies that enhance their portfolio and make for better success. Ideas that have been posed in the past include stocks with high earnings per share ratios, good fundamentals, and the ability to trade options for consistent cash on a monthly basis. There is one other consistent income indicator, and it'd dividends. While touted in the past as earning for the conservative, non-risk taker, dividends can end up being a lucrative addition to any portfolio, assuming a good dividend payout.

Dividends are essentially monies that are earned by a corporation and redistributed among the shareholders, who (supposedly) are valuable assets to a company. For example, if a stock may be worth $30 and pay a quarterly dividend of 0.30, or thirty cents a share. If one owned a hundred shares, then one's account would be credited $30 every four months, or 1%. Over a year, the payout from dividends would be around 4%, plus or minus, since the price per share of the stock would fluctuate. Dividends payouts aren't predicable, and they are contingent on the company's earnings are profit for that fiscal quarter.

It may not seem to be very much, since thirty cents can't buy very much in today's times. However, when you look at the possibilities of long trading and dividends, it's becomes very attractive to own stock that pays dividends. Your broker will give you the option of taking dividends as cash, or reinvesting the proceeds into stock. In the previous example, each quarter, that portfolio would see a whole extra share in the portfolio, just due to dividends! That ends up being four new shares a year (give or take) and that could mean large gains for investors who are hoping to see massive leaps in stocks - if that 30$ a share stock jumped to 50$ a share in a few years, then each extra share (or one dividend payout) would end up meaning 20$ in real value. That's no joke.