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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The stocks do also increase in value on top of the dividend payment, but the dividend is more consistent. People with large portfolios can generate enough dividends to have regular income coming in similar to a bond. But $1m in a dividend-paying stock might generate $25k in income. A bond might generate $40k, but the stock also have the benefit of the share price increasing over time, too.
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