Dividends

Dividends are income paid by investments. In the stock market many people just invest in the hope that the stock prices will go up. This is fine but for most normal people (not experts), most of the time, investing in this way is just a gamble.

Some people invest in stocks (or bonds) for dividends. That’s the type of investing we like learning about because it’s based on cash flow and not capital gains. Of course, the best of both worlds would be to invest in a stock that pays dividends (providing cash flow) and goes up in value.

Bond dividends are usually higher. When dividends are paid you can receive them in cash or more stock.

Remember that, like all income, dividends are taxed. Knowing the tax laws in your country is really important because some investments produce higher dividends but are taxed at a much higher rate.

For more information on dividends this article is pretty good.