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What is a dividend?

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Quick answer

A dividend is a share of a company's profits paid out to its shareholders, usually as cash. It is one of the two main ways owning a stock can reward you — the other being the share price rising. Companies can return part of their profits to shareholders as dividends.

Key things to understand

  1. Companies can return part of their profits to shareholders as dividends.
  2. They're often paid quarterly, as a set amount per share owned.
  3. Not all companies pay them — many growing firms reinvest profits instead.
  4. The 'dividend yield' is the annual dividend as a percentage of the share price.
  5. Dividends plus any rise in share price make up a stock's total return.

People also ask

Why don't all companies pay dividends?
Many fast-growing companies reinvest their profits to expand instead, betting that a higher share price will reward shareholders more than cash payouts would.
What is dividend yield?
The yearly dividend divided by the share price, shown as a percentage — a quick way to compare the income different dividend stocks pay relative to their price.
How are dividends taxed?
It depends on your country and account type; dividends are often taxable income. Check local rules — this is general information, not tax advice.
What is a dividend in simple terms?
A cash payment a company makes to its shareholders out of its profits.
Do all stocks pay dividends?
No — many growing companies reinvest profits instead of paying dividends.