Why Dividend Stocks Are Getting More Attention From Investors
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Here's your Money Briefing for Friday, May 6th. I'm J.R. Whelan for The Wall Street Journal. The recent volatility in the stock market, like the steep ups and downs we've seen this week alone, are enough to make any investor nervous. That uncertainty is leading many to seek stability in the market.
Usually dividend stocks are thought of as sort of a safety play in the stock market. So when things are a little bit hairy, there's a lot of volatility going on. Investors might gravitate more towards the dividend payers.
So how do dividends work? And why do some financial planners warn against investing too heavily in dividend stocks? We'll talk with our markets reporter, Akani Ohtani, about the role of dividend stocks in your portfolio after the break.
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The stock market so far this year has been particularly volatile, and that's boosting the popularity of a certain class of stocks that pay investors dividends. So what are the pros and cons of adding dividend stocks to your portfolio? WSJ Markets Reporter Akani Ohtani joins us to discuss. Akani, thank you so much for being with us.
Thanks for having me.
So Akani, first of all, just big picture this for us. What are dividends and why do companies pay them?
So usually companies paying dividends will deliver cash payments on a regular basis to investors. So usually it's every quarter a shareholder will get some percentage of their investment back into their wallet. So they might typically get however many cents per share of the stock that they own and those payments continue for as long as the company is distributing dividends. And not every company does this, but typically when you see companies paying out dividends, their shares are called dividend stocks or even bond-like stocks. And it's basically a way for companies to use up some of their extra profits and to return money to shareholders as opposed to reinvesting some of that money into the business or into research and development.
What kinds of stocks typically pay dividends?
A lot of the dividend payers tend to be in the energy sector as well as sort of in the consumer stable space. So you see a lot of companies selling some of these core products that we use in our kitchen pantries all the time. Things like Coca-Cola, for instance, they tend to be some of the more well-known dividend payers out there.
So traditionally, how have investors viewed dividend stocks versus ones that don't pay dividends?
Usually, dividend stocks are thought of as sort of a safety play in the stock market. So when things are a little bit hairy, there's a lot of volatility going on, investors might gravitate more towards the dividend payers. That's in part because of the industries that they tend to be in. So for instance, consumer staples, they're sort of thought to be a little bit more immune than other sectors to market volatility and fears about slowing economic growth because The thinking is consumers are always going to have to buy groceries, for instance.
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