What is a dividend stock?

Dividends are the distribution of a company's earnings to its shareholders, the amount of which is determined by the company's board of directors, as defined by Investopedia.. Therefore, dividend stocks are shares of companies that regularly pay a portion of their earnings to investors.

Catalyst Anchor Madison Mills joins Wealth! to break down what a dividend stock is, what it means for investors, and how they should be added to portfolios, using Walmart (WMT) as an example.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Nicholas Jacobino

Video Transcript

Well, if you're searching the internet for investment advice, you may come across the term dividend, you might read headlines like the best dividend stocks to own or are dividend stocks a good investment strategy question mark.

Well, we're here to define them and get you the term and some answers to your questions here.

Yahoo Finance's catalysts, Cohos Madison Mills has break down.

Hey, hey, thanks so much.

So let's start off by defining what a dividend is.

Dividends are the distribution of a company's earnings over to its shareholders.

So this is a way for companies to use their profits to pay back their shareholders.

A little thanks for owning the dividends.

Amount is determined by the company's board.

So as an example, let's look at Walmart according to their second quarter earnings filing, Wal Mart has paid out $3.3 billion in dividends over the last six months.

If you own a dividend paying stock, you can generally expect to receive that payment monthly, quarterly or annually.

Many stocks do make quarterly payments, but your exact payment is based on how much stock you actually own.

Wal Mart's dividend is 83 cents a share and that is payable in quarterly installments of nearly 21 cents.

If you look at this chart, you can see the date shareholders can expect to be paid.

So if you owned one share of Walmart stock this year, you get 21 cents four times a year, the more you own, the more you get.

So if you own 100 shares, you'll get paid $83 for the year.

Walmart has increased its dividend offering to shareholders for the last five decades.

So that profit for shareholders, it's likely to increase over time.

So why are dividend paying stocks considered valuable?

Well, they're considered a good hedge for investors because you get paid regardless of the broader macro or market conditions.

Even if Wal Mart stock price were to tank, you get paid unless the company chose to eliminate its dividend, which it could choose to do at any time.

But also not every company uses profits to pay back their shareholders right.

There are some companies that use their profits for other things outside of dividends, like paying off debts.

Others like Amazon has not issued a dividend instead opts to invest profits back into the company.

So that is your overview of what a dividend is.

Love it.

Thank you so much.

We'll know exactly what the companies are talking about, what they're talking about their dividend strategy and what shareholders need to know in earnings reports going forward from here as well.

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