Some corporations give back to their investors in the form of dividends, or a small check as a share of the returns the business made in the last dividend period. Other corporations pay nothing, and some pay very high dividends to investors.

The best dividends usually come from companies that create their own product, make money through interest, or are growing rapidly.  Altria, formerly Phillip Morris, was known for its high dividend payments to investors through the 70s and 80s and is one of the fastest growing corporations ever.  In just 40 years, the stock has gone from 7 cents a share to $70, a huge return.

Financial stocks usually pay good dividends as well.  The constant interest income from their holdings such as mortgages, car loans or investments in other businesses has to be put somewhere.  Often financial companies pay dividends that are as high as some bonds.

The worst dividends usually come from tech and medical companies.  In order to protect their revenue stream, technology and medical fields have to keep producing better and better products.  For pharmaceuticals the rules on patents makes competition fierce.  Most pharmaceuticals companies only have 6-7 years before their top earners start fighting generic competition, dropping sales numbers almost instantly.   Tech companies also spend a lot on research and development in an attempt to create the next big thing.  You can’t sell the same computer for twenty years, people want updates.

Dividends can help you grow your investment much faster.  Some corporations offer dividend reinvestment plans, also known as DRIPs that allow you to automatically roll over your dividend payments into more stock.  Instead of getting a check for your dividend payment, the corporation pays you with more stock or ownership in the company.   It is easy to see how much dividends add up over time.  If a stock grows 10% per year in value and pays a dividend of 4% per year, you’re effectively growing your investment by 14% per year.

$1000 invested at 10% a year for 20 years makes you $6727 but by reinvesting the dividends and earning 14% per year you would have $13743 at the end of the 20 year period.  The difference is about twice the amount of money.

Companies that don’t pay dividends usually grow faster in value than those that do pay dividends because they reinvest back into the business.  If Microsoft paid a bigger dividend, they would have less money to invest in future products and lose future revenue.  Businesses that pay dividends usually grow slower but make up for it in the form of yearly dividend checks.

Dividends are a great way to make more money with your current investments.  Dividend payments may seem small, but when compounded they really add up.