Stock dividends

Companies are in no way obligated to pay dividends. The management may also decide to re-invest either all or some of the earnings back into the company for further development. Some corporations re-invest all their profits back into the company, this in turn increases the value of their stock which enables their shareholders to sell that stock for possibly higher than what they bought it for. Most corporations strike a balance between the two.

Most companies pay dividends in order to keep their shareholders, who are oftentimes simply investors looking to make money, happy. These are usually companies that have developed beyond the growth stage, they no longer experience the same rate of growth that many younger starting companies do through reinvesting all of their earnings back into the company. By paying dividends the company attempts to generate demand for their shares and in turn increase their price, which naturally keeps its current investors satisfied and willing to hold onto their shares.

One of the main appeals of buying a company’s shares that pays regular dividends is that it is a relatively low-risk investment. Due to the stable nature of most regular dividend paying companies the investor is able to rest easy in the knowledge that the value of their initial investment is unlikely to experience significant drops over short periods of time.

Coupled with the perspective of possible growth that the company may experience, which in turn increases the dividends paid and the value of the shares, buying shares of a stable company can be seen as a good form of investment.