2 Ways to Win with Dividend Stocks

By Lawrence Carrel

With dividend stocks, you have two ways to win: when the share value rises and when the company cuts you a dividend check, paying you a portion of its profits. If the share price rises by 4 percent, and the company pays a 3-percent dividend, you pocket a 7-percent profit, minus taxes, of course. (Or you can reinvest your dividends to buy more shares.)

In addition to providing two ways to win, the share-price-plus-dividend advantage allows you to hedge your bet. If share prices fall by 4 percent and the company pays a 3-percent dividend, you lose only 1 percent of your investment. Of course, companies can always choose to slash dividends, so you’re not completely safe, but you’re often safer than if you’re relying solely on rising share prices to score a profit.