In 2017, billionaire entertainment-mogul Kanye West bought his wife Kim Kardashian West dividend stocks for Christmas, and that gift is still paying off today. Apple has more than quadrupled in value, and Disney has reached all-time highs -- even during a pandemic. 

If the couple still has these stocks in their portfolio today, they've added handsome returns from the stock market to their wealth without breaking a nail -- and they'll continue to benefit from the extra stream of income that comes from dividends. You may not be a billionaire yet, but adding dividend stocks -- even as fractional shares -- to your holiday shopping list will get you one step closer to your wealth goals. 

Side view of a couple doing some window shopping at Christmas.


Diving into dividend stocks

Dividends are a true treasure that allow investors to win in the stock market beyond the benefits of capital appreciation. There's great joy purchasing a stock for $60 and watching its share price rise to $100. 

You no longer have to depend solely on a rise in price-per-share to get excited about investing. Dividends reward you steadily for your patience and loyalty. When companies receive a profit throughout the year, they can disburse funds to their shareholders, giving each shareholder extra income in proportion to the number of shares of stock in their portfolio. Let's say a company pays an annual dividend of $4.48 per share. You can expect to receive an extra $4,480 in your investment account if you own 1000 shares and don't sell the shares before the ex-dividend date

Most companies pay dividends quarterly, and some pay monthly. Imagine buying a Christmas present that continues to deliver extra income all year long. 

Growing with you over time 

Dividends allow you take advantage of a process that has stood the test of time: compounding. Albert Einstein was onto something when he noted that compound interest is the most powerful force in the universe. He reportedly said, "Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it."

Reinvesting your dividends is one of the fastest ways to take advantage of the power of compounding in the stock market and grow your money over time. As you start, your reinvested dividends may only lead to an extra share of stock each quarter, but those additional shares add up over time thanks to compound interest. 

A popular way to reinvest your dividends is through a dividend reinvestment plan (better known as a DRIP). This allows you to automatically reinvest your earned dividends back into the company to buy more shares. When the holiday season comes around next year, you'll have more shares of stock in your portfolio -- even if you don't invest another dime of your money into the stock market throughout the year. 

Unwrap the gift of dividends all year long 

Since different companies pay dividends at different times during the year, you can create a portfolio that allows you to enjoy the benefits of dividends year-round. All you have to do is diversify your portfolio with stocks that pay dividends in different months, and you'll be on your way to building a recurring stream of income. 

Dividends are a smart holiday gift for anyone who doesn't want to limit the value of what they buy. While shopping for the latest gadgets may provide temporary satisfaction, dividends can provide joy over a longer period of time. You can take the cash dividends and use them to pay living expenses, if needed, or you can reinvest those dividends back into your favorite companies and watch your portfolio grow over time. The best part is that you don't have to sell your stocks to take advantage of these benefits. 

The possibilities are endless 

Investing in dividend stocks provide a unique opportunity to profit from capital appreciation, receive an automatic pay raise when companies increase their annual dividend amounts, and obtain additional shares of a company stock when dividends are reinvested. Three-in-one benefits! That's why dividends are the perfect gift for holiday shopping -- it's the gift that keeps giving.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.