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Stocks that pay regular dividends (simply called dividend-paying stocks, or dividend stocks) have numerous benefits, and are typically a part of a well-balanced stock portfolio due to those benefits.
With dividend stocks, you can lose money in any of the following ways: Share prices can drop. This situation is possible regardless of whether the company pays dividends. Worst-case scenario is that the company goes belly up before you have the chance to sell your shares.
A stock in a company for which another company or bank promises to pay dividends in case the issuing company defaults. Because guaranteed stocks carry lower risk, they are usually more expensive than non-guaranteed stocks.
Key Takeaways. Dividends represent the distribution of corporate profits to shareholders, based upon the number of shares held in the company. Shareholders expect the companies that they invest in to return profits to them, but not all companies pay dividends.
If you own shares of a company's common stock and that company announces that it will pay a dividend to its shareholders, then you will receive the dividend. However, holders of common stock are not necessarily guaranteed a dividend. The company can simply choose not to pay any dividends in a given quarter -- or ever.
(Only preferred stock shares guarantee dividends, and these types of shares are a kind of hybrid of a stock and a bond.) There are, however, some companies that are considered dividend stars because of their steady and generous dividend payments to common shareholders.
A: Dividends are not guaranteed. Investors must be 100% clear on the fact that dividends, by definition, are up to the discretion of companies and can stop at any time.And with some types of dividends, specifically preferred-stock dividends, a company must make up for any missed dividends if they're cut.
Companies pay dividends to distribute profits to shareholders, and which also signals corporate health and earnings growth to investors.After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.