I mentioned in my previous note the term dividend. It’s a payment you get from owning an investment share such as stocks or REIT. If you own shares from a company that is making profit then you make money from your investment by receiving dividends and/or by the increase in its share price.
There are companies that pays dividend and there are those that don’t pay it. Normally, when a company is focused in growing, they reinvest their profit to their capitalization and therefore will grow its assets. This is normally reflected by the growth in their share price, assuming they are making positive progress. When a company reaches the point where it’s ready to share its profits then it will start giving dividends to its shareholders. Dividends are not guaranteed and can go low or discontinued by the company for any reason so be careful when deciding to put your money on dividend paying investments. Always consider that there is a risk associated to investing and there’s always a chance that things can change in the future so be very careful when making a decision.
Normally, dividends are given as cash to shareholders and you can use that cash to whatever purpose you want or you can reinvest it to the same company by buying more of its shares. There are stocks, ETF or mutual funds that allows for automatic reinvestment of your dividend so you don’t have to worry about buying them every time you receive a cash dividend. This is called Dividend Reinvestment Plan (DRIP). DRIP will allow you to increase your investment to a certain stock or ETF which will then increase the dividends you are receiving. This will compound your investment and will allow it to grow over time.