What is dividend?
Shareholders earn dividends. A dividend payment is the amount a shareholder gets from the profits made by a company they hold shares in. The amount is based on the specific number and type of shares they own. This is the easiest way to define dividend.
Dividends are usually paid in cash but they can also be issued in shares or stock too.
Where have you heard about dividends?
The dividend a company pays out is widely seen as a reflection of the company's profitability and general health. So news stories about companies' results are likely to talk about the dividend paid and whether this is an increase or decrease on previous payments.
What you need to know about dividends...
The timing and amount of dividend payments have to be authorised by a company's directors.
Publicly quoted companies usually distribute dividends every quarter. Small companies may distribute dividends at the end of an accounting year. Companies don't have to pay dividends every time. Young and growing companies may choose not to pay out dividends, preferring instead to reinvest profits back into growing the company.
Investors looking for income will look for companies with a track record of paying out a good dividend regularly.
Dividends can be paid out of current earnings, past earnings or kept as reserve. Holders of preferred stock are usually paid a fixed rate dividend and are paid first. Investors generally have to pay taxes on dividend income.