Financial Word of the Day: Dividend Stock

Larry Jones
Aug 11
2 min read

Updated: Sep 25

Definition of Dividend Stock

A dividend stock is a share in a company that regularly pays out a portion of its profits to shareholders in the form of dividends—typically on a quarterly basis. These payments are usually made in cash, but can also come as additional shares of stock.

Dividend Stock in plain English

You buy a slice of a company, and in return, they pay you a piece of the profits—again and again. That’s a dividend stock. It’s a favorite tool for long-term investors looking to grow wealth and generate steady income.

Why Dividend Stocks Matter

Dividend stocks are like financial “double-dippers.” You can earn in two ways:

Stock appreciation – if the share price goes up over time, your investment grows.
Dividend income – even if the price stays flat, you still get paid regularly just for holding the stock.

That combo makes dividend stocks especially attractive for people who want passive income without constantly having to trade or "beat the market."

Example in Action

Let’s say you own 100 shares of XYZ Company, which pays a $1.00 annual dividend per share (or $0.25 every quarter). That’s $100 per year in cash just for holding those shares.

If XYZ’s stock price also rises from $50 to $60 over the year, you’ve made capital gains and collected income. That’s the dividend stock sweet spot.

**Learn more about investing from Speak the Language of Money**

Common Use of Dividend Stock in Conversation

Friend: “I want to invest, but I also want some income. Not just watching my money sit in a stock I never sell.”

You: “You might want to look into dividend stocks. They can pay you while your investment grows. Kind of like getting rent checks from your stocks.”

Who Buys Dividend Stocks?

Retirees: Because they offer reliable income without needing to sell shares.
Long-term investors: Reinvesting dividends can accelerate compounding.
Anyone seeking passive income: Especially those building a portfolio for financial independence.

Bonus Tip: Reinvesting Dividends

If you don’t need the cash right away, reinvesting dividends back into more shares can turn your portfolio into a compounding machine. It’s the financial equivalent of planting seeds that grow more trees that plant more seeds.

Bottom Line

Dividend stocks are a smart way to get paid while you wait. They reward patience, encourage discipline, and add a layer of income to your wealth-building strategy. They may not be flashy, but over time, they can quietly build serious wealth.

So if you're looking for a way to make your money work harder—while giving you a little something back along the way—dividend stocks might be your new favorite tool in the financial toolbox.