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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Some people have the goal of their investments to be income generation. These are typically retired people. They prefer bonds and dividend stock which return income they can live on. Older, more mature companies pay dividends because they don’t have a need to build up a pile of cash and they aren’t in a rapid growth phase. Cash is inefficient. It has a low return on investment.
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