Things your parents tell you: "Eat your vegetables!", "Don’t stay out pass 2 am!", "Make sure you choose stocks with dividends!" Okay, maybe not that last one. Believe it or not, vegetables and dividends have a lot more in common than you think.
Lets take something simple like a famer planting corn. The first step the farmer takes is to pick a plot of land. Picking the right plot of land to plow and grow his corn is like picking the right financial institution to grow with. Now that he has his plot of land, he can move on to the second step: plant the corn. This farmer is smart and he's picked only the highest grade seeds because he only wants to plant seeds that are sure to give him corn in return for his patience. So, the farmer's seeds are like the larger and safer "blue chip stocks".
Side Note: Blue chip stocks, like IBM and Chevron have steady growth and are guaranteed to give you a return on investment as long as you have enough patience and are therefore a safer bet.
Lets get back to our farmer, he has been patiently waiting for his seeds to grow because each seed yields different amounts of corn: 5 corns per a seed, 1 corn per a seed, or 10 corns be a seed. The different amounts of corn per a seed is the farmer's profit or, in stock market terms, the corn is dividends -- the little bit of return in corn (dividends) he got for holding onto the stock (seed) and watching it grow over time. Finally, the farmer took the corn that was yielded from his trusty seeds and used it to produce more seeds to plant and grow even more corn. Just like in the stock market, typically you take your dividends and reinvest them into the same stock to produce even more dividends.
Lets leave the farmer to his corn and dive into dividends a little more. Dividends are given to shareholders for owning the stock “A share of the earning per se” and each dividend just like the corn yield has a different yield, it is basically a "thank you" for owning the stock.
Why Companies Do It
• They are more established (Blue Chip usually)
• Give the perception of financial stability
• Attract Investors
There are many stocks out there that yield dividends and it is up to your financial professional to help you find them. We here at Orca know how important it is to have these stocks in your portfolio and have made them part of our mantra with our partners. Now, eat your vegetables and reap the benefits!