When people talk about making money from stocks, they usually mean selling them for a higher price than they bought them. But that’s not the only way to earn money. Some companies actually pay you just for owning their stock. That money is called a dividend.
A dividend is a payment that a company gives to its shareholders, usually every few months. It’s like a reward for investing in them. Not all companies pay dividends, but a lot of big, steady companies do—like Coca-Cola, Apple, or Johnson & Johnson.
Here’s how it works: Let’s say a company pays a dividend of $1 per share every year. If you own 10 shares, you’d get $10 a year. Some companies pay monthly, but most pay quarterly (every three months). It may not sound like a lot, but if you keep reinvesting those dividends to buy more shares, it can really add up over time.
Dividends are especially popular with people who want steady income, like retirees. But they can also be great for younger investors who are still building wealth. Reinvesting dividends can help your investments grow faster thanks to something called compound interest—which means you start earning money on your earnings.
You don’t have to do anything special to get dividends. If you own a stock that pays them, they’ll just show up in your account when it’s time. You can either take the money as cash or automatically reinvest it.
One thing to keep in mind is that dividends are usually taxed, unless you’re holding the stock in a retirement account like a Roth IRA. So while it’s nice to earn that extra income, don’t forget the IRS might want a piece of it.
Dividends might not seem exciting at first, but they’re one of the most reliable ways to grow your wealth over time. Whether you’re getting a few dollars or a few hundred, that steady flow of money can really boost your investing power.
