A bond is an investment instrument, while a dividend refers to the income produced by stock ownership. Knowing the differences can help you choose the type of risk you want to take, the investment period, the type of income you prefer to earn, and frequency of payments you wish to receive.
Asset vs. Income
Accountants and government tax collectors typically classify bonds as an asset, but classify dividends as another form of income. Bondholders acquire bonds as a form of investment. A dividend is not considered an investment per se, but is the income that results from investing in stocks.
Owner vs. Creditor
Dividends pertain to an ownership stake, while bonds relate to a creditor stake. A person who receives a dividend is a stockholder of a corporation, and stockholders have an ownership stake in the issuing corporation. Municipalities, governments, companies and financial institutions issue bonds to raise funds. A person who holds a bond doesn't have an ownership stake in the company or entity that issued the bond, but is considered a creditor.
A bond investment generates a fixed-rate income called the coupon rate, while a dividend is a fluctuating-rate income generated by a stock investment. Bonds are often called a fixed-rate security; many consider them to be less risky, since income derived from bonds doesn't fluctuate much based on economic changes. Investors acquire stocks in the hope of receiving a part of the corporation's profits, or dividends. Dividends are not fixed; the amount a stockholder receives depends entirely on the company's profitability.
Maturity and Payment
The due date for the payment of the amount borrowed is called the bond maturity date; the length of time until the maturity date is referred to as bond term. Bonds earn interest yearly, and in the United States, interest is commonly paid semi-annually. Stocks generally don't have a maturity period and can be kept as long as the issuing corporation exists. Dividends earned from stocks are distributed only after the corporation's board of directors declares how much of (and when) the profits can be distributed.
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