Dividend Stocks Vs. Mutual Funds

Save

Both dividend stocks and mutual funds function as investment vehicles that pay income to investors, but are structured differently. Unlike an individual stock, which represents an ownership share in one company, mutual funds hold a variety of stocks or even other types of securities, such as bonds.

Dividend Stocks

  • Stocks that pay their investors a dividend (a portion of the company's earnings) are sometimes referred to as dividend stocks. Companies that are known to pay their investors dividends---and increasingly better dividends over time---are sometimes referred to as dividend aristocrats.

Dividend Stocks and Risk

  • Dividend stocks are sometimes sought as an investment vehicle because they appear less risky than other stocks. If a company is insolvent (financially unable to meet its obligations to investors and creditors), then it generally can't---or won't---pay out dividends to its investors. Therefore, investors assume there is less risk investing in a company that pays dividends, but that is not always true.

Dividend Stocks and Income

  • Dividend stocks can provide a steady income source, which makes them appealing to some investors. But when a company pays out dividends, it is not using all of its profit for future company growth or to invest in new equipment or improvements.

Mutual Funds

  • A mutual fund is a collection of stocks, bonds or other securities that an individual can invest in along with other investors, sharing the overall expenses---and the risk---as well as the profit.

Mutual Funds and Risk

  • Like dividend stocks, mutual funds can be considered less risky, but for a different reason. Mutual funds consist of different types of stocks or bonds, which means that while one part of the mutual fund is experiencing a loss, the other parts might be showing a profit.

Mutual Funds and Income

  • A mutual fund makes two kinds of earnings distributions to investors: a distribution of income from dividends and interest and a capital gains distribution, which results from capital gains realized from the sale of a fund's investments.

References

Promoted By Zergnet

Comments

You May Also Like

  • The Difference Between Growth & Dividend Mutual Funds

    There are two ways to make money in stocks: growth and dividend income. Growth means an increase in the share price over...

  • Stock Dividends Vs. Cash Dividends

    A dividend is a distribution of cash or shares by a company to its stockholders. Dividends allow shareholders to experience income on...

  • Mutual Company vs. Stock Company

    Though both issue popular investment instruments, there are fundamental distinctions between stock companies and mutual fund companies. Stock companies are large corporations...

  • Taxable Vs. Non-Taxable Dividends

    One of the perks of being an investor is receiving dividends. These dividends could come from owning stock or from owning shares...

  • Are Mutual Funds Risky?

    Mutual funds tend to be less risky than buying individual stocks because of the diverse group of investments held by mutual funds....

Related Searches

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!