A dividend stock is an ownership share of the shareholder in a particular company which pays a portion of the profits while systematically creating a stream of income. Based on the payout ratio of the company, the dividend is given to the shareholders.
Dividend yield is the ratio of the annual dividend of the company to its share price. Mathematically, dividend yield = Annual dividend/ share price. Investors with less risk appetite look for dividend stocks for regular return.
Looking at the top dividend stocks in terms of yields becomes important when evaluating companies from future return prospects. Yields in particular, with their sustainability pattern can reveal a lot about companies’ cash based situation and capabilities to deliver returns going forward as well.
People prefer a dividend stock in their portfolio as it possesses the feature of compounding. Compounding means that the earning which is generated through these dividend stock will get reinvested and will eventually create earnings from earning. More precisely, the dividend generated from these dividend stock will get reinvested to buy another set of a share of the dividend stock which results in giving a higher dividend.