Definition§
A dividend is the portion of a company’s earnings that is distributed to shareholders as a reward for their investment in the company. This distribution is decided by the company’s board of directors and can come in the form of cash payments or additional shares. Dividends are typically paid on a regular basis (once a quarter, semi-annually, or annually) and provide a way for shareholders to earn a return on their investment without having to sell their shares.
🤑 In short: A dividend is money (or stock) in your pocket, thanks to owning the piece of paper they call “shares”!
Dividend vs. Earnings Retention Comparison§
| Feature | Dividend | Earnings Retention |
|---|---|---|
| Purpose | Distributing shareholder wealth | Reinvesting in the business |
| Frequency | Regular (quarterly, annually) | Ongoing as needed |
| Effect on shareholders | Immediate cash flow | Potential for future capital gains |
| Decision maker | Board of directors | Management and board decisions |
| Impact on share price | Can increase demand for shares | Potential long-term price growth |
Examples§
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Cash Dividends: A company declares a dividend of $1.00 per share. If you own 100 shares, you receive $100.
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Stock Dividends: Instead of cash, a company offers additional shares as dividends. If you own 100 shares and receive a 10% stock dividend, you’ll then own 110 shares.
Related Terms§
- Dividend Yield: The annual dividend payment divided by the stock’s price, expressed as a percentage. E.g., if a company pays a $2.50 dividend and the stock price is $100, the dividend yield is 2.5%.
- Ex-Dividend Date: The cutoff date established by a company in order to determine which shareholders are entitled to receive a dividend.
- Preferred Stock: A type of stock that typically guarantees fixed dividends.
Illustrative Formula§
Humorous Insights§
“The three most important words in business: Dividend, Dividend, Dividend!” - Unknown Entrepreneur
Did you know that some of the largest companies in the world, like Apple and Microsoft, actually pay dividends? It’s like they’re saying, “Thanks for your investment — now go buy yourself a nice coffee!” ☕️💰
Frequently Asked Questions§
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Why do companies pay dividends?
- To attract investors looking for income and to reward shareholders.
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Can dividends change?
- Absolutely! A company can increase, decrease, or even eliminate dividends based on financial performance.
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Are dividends guaranteed?
- No, dividends are not guaranteed. If a company faces financial difficulties, dividends can be cut.
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Do all companies pay dividends?
- No, many growth-oriented companies do not pay dividends, preferring to reinvest profits into future expansion.
Suggested Readings & Resources§
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Books:
- “The Intelligent Investor” by Benjamin Graham
- “Dividends Still Don’t Lie” by Kelley Wright
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Online Resource:
Test Your Knowledge: Dividend Dilemma Quiz§
Remember to keep an eye on dividends! They can be your best friend, as long as sometimes they don’t take you for a ride. Happy investing! 🚀
