Q&A with Apricot: How Do People Make Money with Investing? Example 2: Dividends and Coupons

In our previous blog post, we discussed how people use investments to preserve their capital and protect their savings from inflation. This time, we’ll explore how you can generate an income stream from your investments. Two common ways to do this are through dividend-paying stocks and bonds that pay coupons.

What are dividends and coupons?

They represent your return on investment for providing capital (money):

• Dividends: When you own stock in a company, you essentially own a small piece of that business. If the company performs well and makes a profit, they may choose to share a portion of that profit with you in the form of dividends.  Not all stocks pay dividends. Companies may choose to reinvest their profits back into the business for growth. Dividend payments are typically made quarterly, but some companies pay them monthly or semi-annually.  
• Coupons: When you buy a bond, you’re essentially lending money to a company or government. In return, they promise to pay you back the principal amount at a future date, plus regular interest payments called coupons.  Most bonds pay coupons, although there are some exceptions like zero-coupon bonds. Coupon payments are usually made semi-annually.  

Did you know? Exchange-Traded Funds (ETFs) can also pay dividends!

ETFs are baskets of securities (like stocks or bonds) that you can buy and sell like individual stocks. If the underlying assets in an ETF pay dividends, those dividends are typically passed along to the ETF shareholders. Learn more about ETFs and how they work in our dedicated blog post. 

Main difference 

Coupons are considered a fixed income stream since their payments are regular and scheduled. Dividend payments, on the other hand, are not guaranteed. Companies can increase, decrease, or even eliminate dividends depending on their financial performance.

Reinvesting for Long-Term Growth

Reinvesting your dividends or coupons can be a powerful tool for long-term growth. By using your dividends or coupons to invest more, you can take advantage of compound interest – essentially earning interest on your interest. This allows you to accelerate your returns and build wealth over time. Learn more about the compound interest in our dedicated blog post. 

Importance of Diversification

By investing in both dividend stocks and bonds, you can diversify your portfolio and potentially reduce risk. If one type of investment performs poorly, the other may help offset those losses. This balanced approach can help you achieve a more stable income stream over time.

Interested in generating income from your investments?

Learn more about investing in Apricot Academy. 

Open a brokerage account  for free and download our Apricot app from the App Store or Google Play.

It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Consider your financial goals and risk tolerance before investing.

Apricot Capital is regulated by the Central bank of Armenia.

*The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument. The past performance mentioned in this text is not indicative of future results.