No, not all stocks pay dividends. There are only a few stocks that pay dividends.
Usually, companies with a strong cash flow and who have a controlled capital allocation offer a dividend. While new companies that make acquisitions, capital expenditure, and research and development don’t pay dividends at all.
Shareholders who hold stocks for the long term receive dividends which are issued by the company to all their loyal shareholders on either interim or yearly basis. Some well-known companies even pay multiple dividends a year.
Investors or shareholders call these dividend-paying shares “dividend stocks” and shares that don’t pay a dividend is known as “growth stocks”. Read the below comparison table to understand them better.
| Dividend Stocks | Growth Stocks |
|---|---|
| Dividend stocks have a strong cash flow from operations and well-disciplined capital allocation. Such companies may have a low stock price growth because they believe in offering a direct return. | Growth stocks invest every single penny in growth like – acquisitions, capital expenditures, and research and development. Their stock price may go up but they hardly issue any dividends. |
| A dividend stock company has a priority of returning cash to shareholders. This is the reason why shareholders invest a large amount in such companies. | A growth stock company has a priority of maximum investing for growth. Growth stocks should be in your portfolio even though they don’t give dividends. |
| Paying regular dividends isn’t an easy job, it requires so many tasks to be done. Only an established company can afford to pay the dividend to its shareholders. | Small and new companies can not afford to pay dividends unless they ran out of ideas. |
| Dividend stocks are less risky and more stable. | Growth stocks are risky and more unstable. |
I too do investments and I like to keep at least 40% of the portfolio filled up with dividend stocks. This pays me a good return every quarter as well as it pays off all the stock market expenses on its own.
In conclusion – research before you invest in any company’s share.
Leave a Reply