Investing 101: What is a Stock Dividend?

Which companies pay dividends?

Not all stocks are dividend stocks. Companies can choose whether to pay dividends to investors or not.

Most often, dividends are associated with larger, established companies that have a history of stable earnings. Apple (AAPL), Microsoft (MSFT), AT&T (T), and Exxon Mobil (XOM)1 are examples of companies that pay dividends.

When companies opt not to pay dividends, it may be because profits are being reinvested to fuel growth. Alternately, some companies may simply choose to stockpile cash generated from earnings.

Benefits of investing in dividend stocks

There's a strong case to be made for investing part of your portfolio in dividend stocks. Dividends are income, and when they're associated with a company that's financially sound, that income can be consistent for both the short-term and long-term. You can decide to take the dividends as cash income, or if you don't need to access your dividend income yet, you can reinvest your dividends in additional shares of stock. This allows you to increase the size of your portfolio. It's also a potentially cost-effective way to invest since most companies don't charge fees to reinvest cash dividends.

Historically, dividend stocks have generated the highest returns relative to other stocks since 1972.2 At the same time, they're also less volatile, meaning they're less susceptible to negative impacts associated with market swings between highs and lows. This means that dividend stocks can act as a hedge against volatility — that is, the up and down movements that occur in the market.

Of course, investing in dividend stocks is like investing in anything else — there is risk involved. When choosing dividend stocks for your portfolio, it's helpful to have a trusted advisor you can turn to for guidance. To connect with a Synovus financial consultant for help with your dividend and investing questions, call us today at 1-888-SYNOVUS (1-888-796-6887.)