Stocks return money to investors in two primary ways:
1. Dividends
Companies can choose to distribute a portion of their profits to shareholders in the form of dividends. This is a direct payment made to shareholders, usually on a quarterly basis.
Dividends are typically paid out as cash, but some companies may also issue stock dividends, which means they give shareholders more shares in the company instead of cash.
Companies are not obligated to pay dividends, and the amount can vary depending on the company's financial performance.
2. Capital Gains
When you sell a stock for a higher price than you bought it for, you make a capital gain.
This is the difference between the selling price and the purchase price.
Capital gains can be realized only when you sell the stock, and they are subject to taxes in most jurisdictions.
Example:
- You buy 100 shares of a company at $50 per share, for a total investment of $5,000.
- The company's stock price increases to $75 per share.
- You decide to sell your 100 shares.
- You receive $7,500 from the sale.
- Your capital gain is $2,500 ($7,500 - $5,000).
Note:
- Stock prices can fluctuate significantly, and there is no guarantee that you will make money from investing in stocks.
- You should carefully research any stock before investing.
