Dividends are cash payments that companies distribute to shareholders from their profits. They represent a direct return on your investment beyond any stock price appreciation. Not all companies pay dividends — many growth-oriented companies reinvest all profits back into the business.
Dividends are typically paid quarterly, though some companies pay monthly, semi-annually, or annually. The amount is declared by the company's board of directors and is usually expressed as a dollar amount per share.
Dividend yield measures the annual dividend relative to the stock price. A 4% yield means you receive 4% of your investment in dividends each year. The payout ratio shows what percentage of earnings is paid out as dividends — a ratio above 80% may be unsustainable.
The ex-dividend date is crucial: you must own the stock before this date to receive the next dividend payment. Companies that have increased their dividend for 25 or more consecutive years are sometimes called Dividend Aristocrats.
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