There is little wonder why investors choose high yield dividend stocks during volatile markets. When share prices are slicing up and down faster than the tip of Indiana Joneses' whip, people want to feel a measure of financial security. Do income paying blue chip stocks really provide that surety?
What Dividends Really Are
When a company earns profit they can either re-invest the money to expand or pay out a dividend to shareholders. If the profit is retained by the company, the share price should go up to reflect this. If the business decides to give profits back to the shareholder in the form of a dividend the share price drops by this amount to reflect equity being removed.
Either way, the shareholder should theoretically benefit from profits earned.
- Profits retained help push up share price
- Profits paid out to shareholders lower share price by amount of dividend.
You should either have more worth with increased share value, a cash dividend or a combination of the two. But all things are not equal. Why?
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