While the most visible and understandable way to judge a stock’s performance is by the growth of its share price, one often-overlooked aspect of investing is dividends. The potential growth of dividends paid to shareholders can, over time, be significant. Employing a strategy combining market growth and reinvested dividends can help you reach your financial goals while potentially minimizing the amount of risk in your portfolio.

A dividend is a distribution of a corporation’s earnings to its shareholders, paid on a per-share basis. The more shares an investor owns, the greater the dividend he or she will receive. By issuing a dividend, a company exhibits a healthy cash flow and signals that it believes its growth is sustainable.

Dividend-issuing stocks typically offer less volatility than growth stocks because the dividends are based on the company’s profitability, not market perceptions. In a bear market, this can be especially attractive, as dividend-paying companies may continue to provide a return while growth-oriented stocks are declining. Dividends also help encourage stability in ownership, as investors are more likely to hold onto the stock during difficult times in order to receive the dividend.

Investors who receive dividends either can take a cash payment or use the money to purchase more shares. Reinvesting allows investors to increase their position without providing additional capital, reducing the cost basis of the investment. Reinvesting also unlocks the power of compounding, a helpful way for investors to build wealth.

Maintaining and increasing dividend payments requires consistent earnings growth. In dividend investing, look for stocks that have a track record of consistently increasing their dividends. These usually are strong, stable companies that have self-imposed discipline to continue to perform well and earn a profit year in and year out. More mature companies tend to have higher dividend payout ratios, the indication of how well the company’s earnings support the dividend payments.

However, keep in mind that companies might choose to discontinue dividend payments, and changes in market conditions or a company’s financial condition might affect its ability to pay dividends.

Dividend investing might be an especially good strategy for baby boomers as they near retirement. It generally makes sense for retirees to include some equities among their holdings in order to outpace the rate of inflation. Finding and investing in stocks that not only offer solid dividends, but also increase their dividend payments, can help provide retirement income without having to sell off assets.

This article was written by Stifel, Nicolaus & Co. for Barden Winstead, its branch manager in Rocky Mount.