A dividend refers to the distribution from a Company's earnings to the shareholders. The Board of Directors decide these payouts. A Company provides dividends, in cash or additional stocks, to its shareholders as a reward for investing their hard-earned money into the business.
These Companies believe that they could make better use of the dividend amount to grow their business, and the investors can benefit from the stock price appreciation. Dividends are more sought-after during times of high volatility as investors aggressively look for ways to earn regular income. An important parameter that investors look at in dividend stocks is the total return they might receive by investing in such stocks.
Total return comprises an increase in the stock price (capital gains) and the dividend paid. Capital gains are a portion of the total return on investment due to an increase in the market price of the share. Earnings per share is another component that investors look at while selecting a dividend stock.
Dividend-paying companies that show constant growth in their EPS and increase in dividend are the ones more preferred by investors looking for dividend stocks.