A dividend is a payment made by a company to its shareholders, usually from profits. Dividends provide investors with regular income in addition to potential stock price growth.
How It Works
Companies that earn profits can choose to reinvest the money into the business or distribute part of it to shareholders as dividends. These payments are often made quarterly, either as cash deposits or in the form of additional shares (stock dividends).
Types of Dividends
- Cash dividends: Direct payments to shareholders, usually into a bank or brokerage account.
- Stock dividends: Additional shares instead of cash, increasing the number of shares owned.
- Special dividends: One-time payments issued when a company has excess profits.
Why They Matter
Dividends provide steady income and can make stocks more attractive for long-term investors. They also indicate financial stability, since companies that pay consistent dividends are often well-established.
Final Thoughts
Dividends are a key part of total investment returns. Reinvesting them through a DRIP can accelerate wealth building, while taking them as cash can provide reliable income.