Investing in the stock market is a potentially lucrative source of income, indicates Time. Buying stocks to sell them back at higher prices and dividend payments are two ways through which an investor can turn a profit in the stock market. The New York Stock Exchange and the NASDAQ are two markets that operate in the United States.
Investors use the term bull market to refer to stocks that are likely to rise in value, as defined by Investopedia. As such, purchasing bullish stocks and selling the after the rise in stock price takes place is a way to generate income. However, psychological effects and speculation make the markets a very volatile form of investment. As a result, the time period for which a stock remains bullish is often unpredictable.
A dividend is the redistribution of a certain percentage of a company's earnings to stockholders, describes Martin Tillier. Because buying a stock entitles the investor to a part ownership of the company that issued the stock, the investor may be eligible for a share in its profits. Dividends can be in the forms of cash or additional stock.
There is no set dividend rate that applies to all stocks, indicates Tillier. Therefore, investors must research the dividend rate a stock pays to calculate profits.
The act of a company paying high dividends may signal that the company does not expect a substantial growth in the short term, warns Tillier. Because companies distribute their cash stocks to pay dividends, high dividends indicate that the management board plans has no plans for acquisition or expansion. Investors must take this into consideration when calculating the likeliness of the stock price going up.