made in heaven

The stock market contains a lot of fantastic stocks paying dividends which give their shareholders the ability to earn an income from their invested money. But what exactly are they?

Basically a dividend lets the company to share a portion of their earnings with the people who invest their hard earned money with them. If the company is making money they can choose to distribute a portion of their earnings to their shareholders inthe form of dividends.

Dividends are spread out to each investor depending on how many shares of stock that investor holds. For instance if the company is distributing $1 million dollars of earnings and there are $10 million shares then each investor gets $.10 for every 1 share that they own. Not only does this keep the investors happy, but it also helps to get more investors to invest into the company.

It can also be a good sign if the company is paying out a dividend because it could show that it is making a lot of extra cash. However, it could also signal that the company is in trouble and wants to get new investors fast.

There may also be a problem with the company. Some companies are not very strong and are just paying out a dividend to get new investors to come in and save the company from failure.

So, if all you do is go out and find a list of stocks paying dividends and buy every last one, then you will probably get into some very bad investments. No matter how strong the dividend is will become utterly worthless if the stock goes to $0 in the next 6 months.

Simply by checking out some fundamental factors of the company such as the PE Ratio you can increase your chances of getting into companies whose stock will likely appreciate in the future and you are not relying totally on the dividends it is producing.

So, while dividends work great as an added bonus, they should not be the only reason for getting into a company.

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