What are stocks?
Stocks or shares represent ownership in a company. For example if Company XYZ has 100 shares, and you buy 1 share you own 1% of the company. If you purchase all 100 shares you would own the entire company. A company like Walmart currently has 3.26 billion shares, and each share sells for $79.81. Once you buy shares you become part owner of the company, and as an owner you are entitled to share in the profits of the company. Profits of the company are distributed to shareholders in the form of dividends.
What are dividends?
Dividends are cash payments made to shareholders. Walmart currently pays a dividend of $1.88 per share per year, so if you own 1000 shares you would receive $1880 in dividends in cash every year for as long as you owned those shares, and as long as Walmart continued to pay those dividends.
Why are dividends important?
Dividends are paid in cash and yours to keep, re-invest, or spend anywhere you wish. Dividends represent a return on your investment while you continue to hold on to your shares, regardless of the share price. Over time quality companies will increase dividends, which mean more money for you just for holding on to your shares. Coca-Cola has had 50 years of consecutive dividend increases. $1650 invested in Walmart shares in 1970 would today earn you $385,024 each year in dividends alone. Your original $1650 investment would be worth more than $15.7 million.
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