A dividend is a cash payment a company makes to its shareholders, usually every three months. Not every company pays one.
Why companies pay dividends
Mature, steady companies often share some profit with owners instead of keeping it all. Younger, fast growing companies usually keep their cash to grow.
Key words
Dividend yield is the yearly dividend divided by the share price. The payout ratio shows how much of profit goes to the dividend. A very high yield can be a warning sign, because the price may have fallen for a reason.
Dividends are not guaranteed
A company can cut or stop its dividend at any time. That is why the business behind it matters more than the number.
Practice spotting the signs
Our Dividend Detective game lets you look at clues and decide which payouts look steady.
Play: Try Dividend Detective.
A small example
If a company pays $0.50 per share each quarter and you own 100 shares, you would receive $50 each quarter, or $200 a year. If the share price is $40, the yearly yield is $2 divided by $40, which is 5 percent.
Why companies pay them
Mature companies that earn steady profits sometimes share part of them with owners. Fast growing companies often keep their profits to expand instead. Neither choice is better or worse by itself.
Reinvesting
Some investors use dividends to buy more shares. That can add to growth over time, but it does not remove risk. Dividends can be cut, and the share price can still fall.
Common questions
Do all stocks pay dividends?
No. Many companies keep profits to grow the business instead of paying them out.
Is a high dividend yield always good?
Not always. A yield can look high because the share price fell, which can signal trouble. Look at the company too.
Are dividends guaranteed?
No. A company can lower or stop its dividend at any time.
Keep reading
- Closest Call: Guess the Number
- What Is Market Cap? Company Size Explained
- How Compound Interest Works (With a Simple Example)
Education only. This is not investment advice, and investing involves risk, including loss of money.
What it is
A dividend is a payment some companies make to shareholders, often from profits.
How it works
Companies set an amount per share and pay on a schedule, often quarterly.
Key dates
The ex-dividend date decides who gets the next payment. Buy before it to qualify.
Yield
Dividend yield compares the yearly payment to the share price.
Not guaranteed
Companies can cut or stop dividends at any time.
Education only
Not advice.