Dividend
A payment made by a corporation to its shareholders, usually as a distribution of profits.
What You Need to Know
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. Dividends are typically paid quarterly and provide regular income to investors.
Types of Dividends:
- Cash Dividends: Direct cash payments to shareholders
- Stock Dividends: Additional shares of stock
- Property Dividends: Physical assets or securities
- Special Dividends: One-time extra payments
How Dividends Work:
- Companies declare dividends quarterly
- Shareholders receive payments based on shares owned
- Dividends are taxed as ordinary income
- Reinvested dividends can compound over time
Dividend Yield: Annual dividend per share ÷ Stock price
- Example: $2 annual dividend ÷ $50 stock price = 4% yield
Benefits:
- Regular Income: Provides steady cash flow
- Compound Growth: Reinvested dividends grow over time
- Lower Volatility: Dividend stocks tend to be more stable
- Inflation Hedge: Dividends often increase over time
Dividend Aristocrats: Companies that have increased dividends for 25+ consecutive years
- Examples: Coca-Cola, Johnson & Johnson, Procter & Gamble
- Often considered safer investments
- Provide growing income over time
Best For:
- Income-focused investors
- Retirees seeking regular income
- Long-term wealth building
- Conservative investors
Considerations:
- Dividends can be cut or eliminated
- High dividend yields may indicate problems
- Dividend stocks may grow slower
- Tax implications of dividend income
Reinvestment:
- DRIP (Dividend Reinvestment Plan): Automatically reinvest dividends
- Compound Effect: Reinvested dividends earn their own dividends
- Long-term Growth: Can significantly increase returns over time
Sources & References
This information is sourced from authoritative government and academic institutions:
- investor.gov
https://www.investor.gov/introduction-investing/investing-basics/glossary/dividends
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Related Terms in Investment Analysis
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest ÷ current price) or yield to maturity (total return if held until maturity).
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.