How does a stock generate return for investors? There are lots of ways to break it down, but in this article I will focus on one of the simplest breakdowns. I will borrow the Grinold-Kroner Model . You buy a stock of a company from the exchange. You have a finite time horizon, after which you want to sell the stock in the exchange. During your holding period the price may fluctuate a lot. What matters is at what price you buy and what price you sell. In between these two points, you will receive some dividends if the company disburses some of its cash flow to the stockholders. Now you understand, you can make money in two ways from a stock. The price appreciation, if the selling price is higher than the purchase price, and the dividend that you receive during your holding period. Dividend: A company that generates handsome cash flows and don’t have much option to reinvest that cash, will most likely share the cash flow with the stockholders either in the form of divid...