I’m trying to understand the benefits of dividend stocks. I usually hear they generate “passive income” but from what I can tell, the dividend you receive is a tiny fraction of what you paid for the stock itself, and would take decades to recoup what you paid for the stock. Setting aside the possibility of stock price appreciation, how is receiving a small dividend better than keeping the lump sum you would have paid for the stock to begin with. What am I missing?
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When you buy a dividend stock, you still OWN the stock. You collect the passive income (which, yes, is just a small % of your initial investment). But you still own the stock which you can then sell later on.
If you buy a particular stock for $100 that pays a 5% dividend, you collect that $5 every year, and can sell the stock at any time for the prevailing price. Dividend stocks are typically less volatile, so you can usually expect it to trade somewhere near what you bought it for whenever you sell.
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