Dividend investing puts a focus on building a portfolio with high quality companies that are paying a regularly growing dividend. The focus is on the cash flow from the dividend rather than stock appreciation. The goal is to create passive income from which one can live off.
In times of dislocation in the markets, the cash flow from dividends can be reinvested in the markets at low prices, it can also act as a psychological stress reliever when you see your portfolio decrease in value.
What are dividends?
A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders.Wikipedia
A cash dividend is the most common type of dividend, public companies usually pay dividends on a fixed schedule, but may declare a special dividend at any time.
The dividend yield is the ratio of the company’s share price that it pays out in dividends each year. A company with a stock price of $50 and an annual dividend of $2.00 will have a 4.0% dividend yield.