Dividends are a distribution of profits to shareholders. Most companies distribute dividends annually and sometimes at additional, irregular intervals if profits are particularly good.
When choosing a stock to invest in, it is important to consider the dividend policy. The dividend policy adopted by a company reflects many factors, including:
- Cash position
- Growth prospects
- Stability of earnings
- Capital spending needs
- Reputation for reliability
In general, older and well-established companies are more likely to pay cash dividends. In contrast, newer startups are less likely to pay cash dividends, saving most of their earnings and cash flow for reinvestment in the growth of a developing business.
Although dividends are an important factor in investment decisions, they should not be your only consideration. Smart investors tend to favor stocks which show a track record of modest but increasing dividends payouts over time, rather then erratic payers that occasionally pay out generous dividends.
Do you know that funds also pay out dividends too? If you are interested to learn more about funds which pay out regular dividends, contact your trusted FLA Organization financial planner for more investment insights today!
