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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Dividend providing stocks are for companies where more investment in running the business won’t help grow the business at all. Otherwise the company would be better off re-investing profits back to funding growth.
Imagine a company setup just for running a toll road. The stock sale funds the initial building of the road. Dividends are all the fees collected minus the operating expenses. The stock owners still own the road. The company doesn’t plan to build more and more toll roads around the country, just operate the one it has.
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