DEFINITION:
A dividend is a portion of a company’s earnings distributed to its shareholders, typically on a regular basis.
WHEN AND WHY IT’S USED:
Dividends are used by companies as a way to return profits to their shareholders, making them an important source of income for investors. During periods of market stability, dividend-paying stocks are attractive to those who prefer regular income, especially in low-interest-rate environments. They serve as a signal of a company’s financial health and commitment to sharing profits with its investors.
IMPORTANCE IN COMMUNICATION:
Discussing dividends with your financial advisor is important because it clarifies how income from your investments is generated. It helps you understand the balance between growth and income in your portfolio. Knowing how dividends work allows you to gauge the reliability and stability of your investments, particularly if you depend on them for regular income.
Furthermore, an informed conversation about dividends can highlight the tax implications and reinvestment opportunities associated with them. This dialogue ensures that both you and your advisor are aware of how dividend income fits into your overall financial plan, helping you make decisions that support your long-term financial stability and cash flow needs.
EXAMPLES IN CONVERSATION:
“Does this stock pay a regular dividend?”
“How do dividends contribute to the overall return of my portfolio?”