Dividends are the amount of profit which a company decides to share with its shareholders. Normally, when a company comes out with a profit it would reinvest most of it back into its business. This will cause further appreciation in its stock price. This is highly desirable and most stock investors are on the lookout for such stocks. But there will come a time, when a company becomes too large to grow. It will already have a large market capitalization and no matter the profit it has made this quarter it would be similar to what it had made last time or sometimes even lesser. In such cases, in order to keep its shareholders around the company would give out dividends.

                    A dividend is usually quoted as an annual figure; ie if they mention that IBM has announced a dividend of 5$, then that means each quarter you will get 5/4=1.25$ per share. So if you have 200 shares then you will get 1000$ yearly ie around 250$ on a quarterly basis.

Dividends are usually used by the following group of people:----

1. Conservative investors or amateur investors:-----

Investors who are not accustomed to taking a lot of risk would find better peace investing their money in stocks that provide higher than average dividends. Dividends can be a source of regular income, especially when you own like 4000 shares, where each share can earn a dividend of 2 to 3$. But investors also need to be aware that dividends can’t be guaranteed. It's entirely up to the company to decide. Before you invest for income make sure that the stock is an income stock(which provides higher than average dividends).

2. Retirees:----

Long term growth stocks can be really attractive when you are getting started in life. You can take more risks. Of Course, growth stocks are always more riskier. But retirees usually don't much use of growth stocks. They are more concerned about stocks that can earn them a decent income. Usually most retirees put their pension funds into income stocks.

Few more pointers

Dividend Stocks are also known as defensive stocks. Because usually these stocks would belong to a company that sell goods or services that are required no matter what the economic conditions are. Think soap, paste, food etc. These goods would always have demand no matter what is happening in the financial world. Make sure that when you are going for dividends that you invest in such stocks.

But having dividend stocks is not always risk free. There is always the possibility that the stocks value would appreciate or depreciate. So do understand that there is always some amount of risk involved. Also there is no guarantee of a dividend. It is entirely up to the company’s board to decide on whether they need to give dividends this year, whether the amount is going to be same as last year or more or even less.