Definition
Dividend Investing
Dividend investing focuses on stocks that pay regular, growing dividends, aiming for steady income alongside capital appreciation.
Dividend investors seek companies with reliable cash flows and a track record of paying and ideally raising dividends, mature firms in sectors like FMCG, utilities, and many PSUs. The goal is a dependable income stream plus the discipline that paying dividends imposes on management.
Key metrics are dividend yield and the payout ratio: a sustainable yield backed by strong earnings is more valuable than a high yield from a struggling company. In India, dividends are taxable in the investor's hands at their slab rate.
Related terms
- Dividend Payout RatioThe dividend payout ratio is the share of net profit a company distributes to shareholders as dividends, with the rest retained for growth.
- Buy and HoldBuy and hold is a long-term strategy of purchasing quality stocks and holding them for years, ignoring short-term price swings.
- Dividend YieldDividend yield is the annual dividend per share divided by the share price, expressed as a percentage.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.