Receiving a Dividend as Cash Is Overrated -- Do This Instead
There are two primary ways to make money from a stock: an increase in the stock price and dividend payouts. The first one is straightforward -- you buy shares at one price and hopefully sell them for more in the future. Dividends aren't as straightforward, and their contribution to an investors' total return can be underestimated. But as of 2021, dividends accounted for around 32% of the S&P 500's total returns since 1926.
Companies generally pay dividends from their profits, so younger companies tend not to pay dividends as they reinvest their earnings to drive growth. More established companies, however, will offer a regular payout to make up for less growth potential and entice investors.
If you're invested in a dividend-paying stock or fund, you can either receive your dividend in cash or enroll in your broker's dividend reinvestment program (DRIP) if it offers one. A DRIP takes any dividends paid out and automatically reinvests them in the stock or fund that paid them. And if you have the option, you should strongly consider going the DRIP route.
Source Fool.com
