When you hop onto the NASDAQ or whatever stock tracker you prefer and look at a classic chart of stock price over time, you’re not being told the whole story. If the aim of investing is to earn money, then it’s foolish to forget one of the major ways investors can make money – dividends.
Dividends are regular payouts of a company’s profits made to shareholders, paid per share. They are one of a few ways companies can use profits, other than buying back stock or simply retaining the earnings as assets. While often overlooked by beginning investors, dividends can constitute a significant portion of earnings. For instance, Ford (F) has paid out dividends equaling 5.25% of the share price over the past year, which is at least half as much as an average security’s price can be expected to gain in an average year. Simply put, even if Ford’s stock only gained a seemingly unimpressive 7% in a year, with dividends like that it would still add 12% to the total value of your holdings, a robust return.