What Role Does Dividend Play?
After the company has paid off its creditors, it may distribute a portion of the remaining profits to its stockholders; this is called Dividends.
Whether a company is known to distribute periodic dividends or not decides if its shares are classified as a Growth or Income Stock. Income Stocks belong to mature companies that maintain a record of stable dividends. They are also called Value Stocks because they usually trade at a discount (i.e., they are undervalued).
Growth stocks belong to companies with high growth potential. Instead of paying dividends, such companies prefer to reinvest the profits to expand the business. Unlike dividend stocks, these stocks trade at a premium (i.e., they are overvalued).
Growth stocks are more volatile and riskier than Value Stocks! What would you pick?
