Dividend
A cash (or stock) payment a company makes to shareholders from its profits, typically on a quarterly schedule.
A dividend is a distribution of a company's earnings to its shareholders. The board of directors sets the dividend amount per share and the payment schedule — most US companies pay quarterly.
Not all companies pay dividends. Growth-stage companies reinvest earnings; mature, cash-generative businesses (utilities, consumer staples, blue chips) tend to pay them. A consistent, rising dividend is a signal of financial health and management confidence.
Dividends are not guaranteed. A company can cut or suspend its dividend at any time — and the stock usually falls sharply when that happens, both for the income loss and the negative signal about the business.
Example
You own 1,000 shares of a stock that pays a $0.50 quarterly dividend ($2.00 annualized). You receive $500 every quarter, $2,000 per year, regardless of where the stock price moves.
Related Terms
Blue-Chip Stock
Shares of a large, well-established company with a long track record of stable earnings and often consistent dividends.
BeginnerCommon Stock
The standard class of share that gives holders voting rights and variable dividends. Most publicly traded shares are common stock.
BeginnerDividend Payout Ratio
The share of earnings paid out as dividends. A low ratio leaves room to grow the dividend; a very high one signals fragility.
IntermediateDividend Yield
Annual dividend per share divided by stock price, expressed as a percentage. Shows income return relative to current price.
BeginnerEx-Dividend Date
The cutoff date to own shares and qualify for the next dividend payment. Buy on or after this date and you miss the dividend.
IntermediateFree Cash Flow
Operating cash flow minus capital expenditures. The actual cash a business generates after maintaining and growing its assets.
IntermediatePreferred Stock
A hybrid share class with fixed dividends and liquidation priority over common stockholders, but usually no voting rights.
IntermediateShare Buyback
When a company uses its cash to purchase its own shares on the open market, reducing shares outstanding and boosting EPS.
IntermediateStock
A unit of ownership in a company. Buy stock and you own a slice of the business, with rights to a share of earnings and assets.
BeginnerYield
The income generated by an investment expressed as a percentage of its price. Used for bonds, dividends, and savings.
Beginner