A common way investors classify stocks is whether the underlying company is focused on growth or whether it's focused on paying its shareholders a dividend. Growth stocks typically do not pay dividends. Instead, these companies reinvest their earnings to fuel future growth. Income stocks are less volatile in their movement and have a steady record of paying dividends.
Stocks That Pay Dividends
Income stocks can be good in most investment portfolios. They are relatively safe, and if you reinvest the dividends they pay, the value of your portfolio will grow. For retirees who depend on their portfolio for living expenses, income stocks are a good choice. Banks, utilities and transportation companies are generally good income stocks. Their business is stable, which is reflected in stable stock prices. They typically pay a dividend that is higher than average, and they may periodically increase the dividend. Blue chip stocks -- those of large, well-known companies -- can be good income stocks, too. If you buy and hold a good stock that pays a higher dividend over time, the yield -- the percentage of its stock price it pays out in dividends -- on your original investment will grow. Be careful if the yield seems too high, though. If the stock has experienced a drop in price, what was an average yield at the former price will be a high yield at the stock's lower price. If the yield has grown because the stock price dropped, the company may consider cutting its dividend.
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